1. Standard deviation is a measure of risk. Which of the following risk does it measure?

1. Diversifiable risk
2. Non-diversifiable risk
3. Market risk
4. Total risk

2. Which of the following statement(s) is(are) correct?

1. The standard deviation of a risk-free asset is zero.
2. The beta of a risk-free asset is one.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

3. Ricky is an analyst for Goldmine Investment Company. Ricky asked his assistants Peter and Ken to calculate the correlation coefficient, r, of 2 stocks for him. Peter and Ken came up with the following answers:

Peter: The correlation coefficient of the 2 stocks is 1.22.

Ken: The correlation coefficient of the 2 stocks is -0.78.

Which of the following can Ricky conclude about Peters and Kens answers?

Peters answer Kens answer

1. Could be correct Could be correct
2. Definitely wrong Definitely wrong
3. Could be correct Definitely wrong
4. Definitely wrong Could be correct

4. A one-year zero-coupon bond has a yield to maturity of 2%. A two-year zero-coupon bond has a yield to maturity of 3%. A three-year zero-coupon bond has a yield to maturity of 4%. According to the information of the 3 bonds, what is the forward rate of the 3^rd year?

1. 5.10%
2. 6.03%
3. 6.96%
4. 7.77%

5. Further to the previous question, which of the following is correct about the slope of the yield curve?

1. The yield curve is upward sloping.
2. The yield curve is downward sloping.
3. The yield curve is flat.
4. The yield curve is upward sloping first and then downward sloping.