True, false, or uncertain? Distinguish different parts of each question (ie. in some cases part a) may be true but part b) false). Explain your answers. Use results derived in lectures without deriving them from scratch, simply mention what result you are using and what the result says. A1 The yield to maturity of a bond that matures in N periods is given by the coupon rate. Explain. A2 Consider Arrow-Debreu securities a) they are not traded in actual markets, but their prices can be found from observations on stock prices b) Furthermore prices of AD securities should add up to one. Explain. A3 A negative position on an asset is a) the same as a short sale b) the same as buying on margin. If false explain the differences. A4 Consider two stocks that have the same return variance but different mean returns. A rational investor will never hold the stock with the lower mean return. Give an example when this is true, another where it is not. Explain. A5 A more risk-averse investor who is not leverage constrained a) is likely to invest more in a risk-free asset and b) likely to invest more in stocks with high variance than in stocks with low variance. Explain with some graphs or simple formulae. A6 The return of long bonds is uncertain and it is linked to monetary policy. For example, assume that the Bank of England increases interest rates by surprise in 2020 causing an upward shift of the whole yield curve in 2020. In this case the one-year holding period return (HPR) of a 10-year bond issued in 2019 will be low. However, this change in monetary policy will not affect the return of one-year bonds issued in 2019. A7 As long as investors are utility maximizing the stochastic discount factor is proportional to the market return. A8 According to the Capital Asset Pricing Model (CAPM), if the risk-free rate is zero, the mean of the return of any risky asset is given by a constant (same constant for all assets) times the mean of the market return.