For each of the following multiple choice questions, select the best answer

1. Which of the following are ways to diversify a portfolio?

1. Buy more than ten companies.
2. Buy companies in different industries.
3. Buy companies in different countries.
4. Buy a mix of stocks, bonds and cash.
5. All of the above.

2. Under the CAPM, an investor should be compensated for bearing the:

1. total risk
2. diversifiable risk
3. systematic risk
4. unsystematic risk
5. None of these

3. A bond is currently trading at par, has an annual coupon of $100, and matures at a face value of $1000. Therefore, the is 10 percent.

1. coupon rate
2. current yield
3. yield to maturity
4. all of the above answers (a, b, c)
5. None of the above answers (a, b, c)

4. You own a bond that has a 7 percent coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5 percent, then you would expect:

A) the bond issuer to increase the amount of each interest payment on these bonds.

B) the yield to maturity to remain constant due to the fixed coupon rate.

C) to realize a capital loss if you sold the bond at the market price today.

D) today's market price to exceed the face value of the bond.

E) the current yield today to be less than 7 percent.

5. Risk premium is defined as:

A) The total return on a risky asset that exceeds the inflation rate.

B) The return on a risky asset that exceeds the return on a risk-free asset.

C) The risk-free rate of return plus the inflation rate.

D) The real rate of return that exceeds the risk-free rate of return.

E) The rate of return required by investors in risky assets.