You are a bond trader and a compliance officer calls you and tells you that are taking too much risk. What can you do to reduce the risk of your portfolio?

a. Sell short maturity bonds and buy longer maturity bonds

b. Sell high coupon bonds and buy low coupon bonds.

c. Buy short maturity bonds and sell long maturity bonds.

d. Sell short maturity bonds and buy stocks with a high beta.

e. None of the above.

Why does the stock price tend to drop when firms announce a seasoned equity offering?

a. Because it signals that the issuing firm could be in financial trouble.

b. Because the new shares will dilute the earnings of existing shareholders and so the company stock cannot be worth the same amount anymore.

c. The price only drops when firms state that they intend to use the new funds to undertake projects that have a negative net present value.

d. Because investors know that the new issue is underpriced and so the existing shares must adjust to account for this

Which phrase best describes the relationship of bond prices and discount rates.

a. When the discount rate goes up, bond prices go down.

b. When the discount rate goes up, bond prices go up.

c. Bond prices are unaffected by the discount rate.

d. Bond prices are affected by the discount rate, but its impossible to generalize.

e. None of the above.