Question 5

Aset P has a beta of 1.2. The risk-free rate of return is 2%, while the return on the S&P 500 is 8%. Asset P's required rate of return is:

Question 6

A corporate bond is sold for $1,000 (par value) with a 5% coupon. Shortly thereafter interest rates in the economy (the nominal rate of interest) increases to 9% due to inflation worries. Given this scenario (all other things being equal), which of the following bond valuations for this bond in the secondary market would most likely happen: $1,000; $1180, $2,196, nothing

Question 7

Considering the CAPM, which of the following is most useful: 90-day T-Bill, Prime rate, company net income, or depreciation from the balance sheet?

Question 8

BOND VALUATION - Ch 6 and pages OM 11-14: In 2014 Carnival Cruise Lines decided to sell some new bonds (something about fixing a big ship). They sold the bonds for $1,000 (face value) with a 20 year maturity and an 7% coupon. Two years have passed. Interest rates on similar bonds have declined to 4%. If an owner attempts to sell her/his Carnival bond bought for $1,000 in 2014, what should they expect to receive for it in the

secondary market?