questions 7 & 8

7. There are no arbitrage opportunities. The risk-free interest rate today is 8% EAR. A risk free zero coupon bond will pay $1000 two years from now, You buv the bond. One year passes. The risk free interest rate is now lower than 8% EAR. You sell the bond. The price you sold the bond for is: (a) Higher than the price at which you bought the bond (b) Lower than the price at which you bought the bond (c) Could be higher or lower, there is not enough information to say 8. The assumptions of the CAPM hold. There are only three risky assets in the world: stocks A, B, and C. These stocks have the following characteristics: Stock Price Shares outstanding Expected return 10 10 1% Standard deviation 10% 12% 13% What is the composition of the market portfolio? 20 50 3% 4% (a) in A, in B. in C. (b) in A. in B, in C. (c) in A, in B. in C. (d) in A. in B, in C. (e) in A, in B. in C. (f) Cannot be determined from the data given