Explain why. Show calculations for numerical problems.

• Question 5

A portfolio of stocks provides a higher return but average risk. The key is the negative correlations among individual stocks.

False.

• Question 10

When evaluating two independent investments, the NPV approach is a reliable capital budgeting technique without any potential problems.

True

• Question 13

Which of the following statements about portfolio is not true?

Portfolio risk is the weighted average of the standard deviations of all individual stocks in the portfolio.

• Question 14

Which of the following statements about Security Market Line (SML) equation "r_i = r_RF + (r_M - r_RF)b_i = r_RF + (RP_M)b_i" is true?

r_M is the required rate of return on a portfolio consisting of all stocks, which is called the market portfolio.

• Question 16

If an investor buys enough stocks, he or she can, through diversification, eliminate all of the stock risk inherent in owning stocks.

False

• Question 18

At maturity, the value of either premium bond or discount bond is equal its par value.

True.

• Question 22

Junk bonds are high risk, low yield debt instruments. They are often used to finance leveraged buyouts and mergers, and to provide financing to companies of questionable financial strength.

False

• Question 26

Which of the following statements about sinking fund is true?

A company would prefer to use sinking fund to call bond if bond sells at a big premium.

• Question 30

John purchased 100 shares of Google common stock when the company went public through IPO. This transaction occurs in the:

Primary market.

• Question 34

A store is offering a ring for sale for 12 months at $360 per month. The retail price of the ring is $3,900. What is the interest rate on this offer?

19.32%

• Question 35

You want to receive $5,800 per month in retirement. If you can earn 0.8% return per month and you expect to need the income for 30 years, how much do you need to have in your account at retirement?

$683,833

Question 36

What's the future value of the initial $100 deposit after 10 years? We assume current interest rate is = 6%, compounded monthly.

$181.9

• Question 37

What's the present value of the $100 due in 10 years (FV=$1,000)? We assume current interest rate is 6%, compounded monthly.

$55.0