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Part A: (True/False) 240.5=12 points 1. Yield to maturity (YTM) and yield to call (YTC) of a bond will remain same for premium and/or discount
Part A: (True/False) 240.5=12 points 1. Yield to maturity (YTM) and yield to call (YTC) of a bond will remain same for premium and/or discount bonds. 2. Premium bond and discount bonds will get back to par value bond if required rate of return (the discount rate or YTM) remains constant throughout the life of a bond if everything else remains constant. 3. Everything else remaining constant, the price risk of a short-term bond is equal or more than the price risk of a long-term bond. 4. Both price risk and reinvestment risk arise out of fear that the bond yield will rise. 5. Every bond faces "Default Risk" scenario. So, a default risk premium is already factored into a bondholder's required rate of return. 6. The relationship between YTM and bond price is inverse. 7. Each country's government bonds are regarded as risk-free investments to the same degree by rational investors. 8. By maintaining a well-diversified portfolio you can eliminate both idiosyncratic and market risk. 9. The less correlated your stocks on the portfolio, the higher the diversification benefits of your portfolio of stocks. 10. Market risk premium (RmRrf) from the CAPM is the same as 'risk premium' from the bond-yield-plus-risk-premium model of calculating cost of capital. 11. From CAPM model, you as an investor calculate the 'expected' return for your investment on a stock and/or a portfolio of stocks
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