BB, B, and C. Bonds with ratings at or better than BBB is called "investment grade"; worse bonds are called "high yield" or "junk bonds". Many institu- tional investors (e.g. pension funds) are legally prohibited to hold high-yield funds. Note that credit ratings do go up or down over time. If a bond gets downgraded from BBB to BB, all those funds will have to sell.

(d) Fact: company insiders (e.g. CEOs) often have a better idea whether their stock is over- or under-valued and will trade accordingly to gain profits for themselves. Insider trading is publicly disclosed in SEC form 4 - therefore, we know who bought and sold.

1. Please compute Sharpe ratio for the following fund. Its average return is 12% and volatility is 4%. Risk-free rate is 6%.
2. Below are the returns of funds X and Y, together with the returns of their bench- mark indices. You should be able to answer this question by eyeballing the numbers, but you should feel free to do calculations too.