Consider four different financial products you can invest in:

1. A 12-month certificate of deposit that earns 2% annual interest.

2. A par 1-year risk-free bond with a 2% annual coupon.

3. A par 1-year risky bond with a 3.5% annual coupon.

4. A $100 per share value stock that typically pays a 24% dividend annually.

Q1. Which of these has credit risk? State at least 2 reasons WHY you selected one or more securities OR why you did NOT select the other one/ones.

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Q2. Which of these is the least sensitive to interest rates? State at least 2 reasons WHY you selected one or more securities OR why you did NOT select the other one/ones.

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Q3. Which of these can be sold short? State at least 2 reasons WHY you selected one or more securities OR why you did NOT select the other one/ones.

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Q4. Which of these is most likely to trade on an exchange? State at least 2 reasons WHY you selected one or more securities OR why you did NOT select the other one/ones.

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Q5. Explain the credit risk associated with over-the-counter markets. State at least two (2) reasons to justify your explanation.

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