## Instructions

Please download the attached file and complete all exercises. Highlight the answer and provide explanations (100 words) to each of the answers along with any relevant calculations to receive credit. Your part in completing the assignment is to demonstrate an understanding and application of the concepts covered. Please complete the assignment in a Microsoft Word document.

Chapters 3 & 4

Instructions: Calculate each exercise. Highlight the answer and provide explanations (100 words) to each of the answers along with any relevant calculations to receive credit. Your part in completing the assignment is to demonstrate an understanding and application of the concepts covered.

1. A good measure of an investor’s risk exposure if she/he only holds a single asset in her portfolio is:

a. The expected value of the asset’s returns.

b. The standard deviation of possible returns on the asset.

c. The correlation coefficient with the market portfolio.

d. The normal probability distribution function.

2. The beta for ABM Industries is 1.50. Assuming that the nominal risk-free rate is 6.0% and that the return to the market is 9.0%, what is ABM’s required return?

a. 7.5%

b. 18.4%

c. 10.5%

d. 3.2%

3. Koda’s Manufacturing has a required return of 9.50%. If the market return is 13.0% and the nominal risk-free rate is 6.0%, what is Koda’s beta?

a. 0.5%

b. 8.3%

c. 7.2%

d. 2.2%

4. Which of the following items reflects the time value of money?

a. Real risk-free rate.

Use the following data to answer questions 5 and 6. Assume the following premiums reflect current market conditions:

· r* = 3.15%;

· IP (1-year bonds) = 2.35%;

· IP (3-year bonds) = 2.65%;

· IP (5-year bonds) = 2.90%;

· DRP (AAA corporate bonds) = 0.60%;

· DRP (AA+ corporate bonds) = 0.85%;

· LP (AAA corporate bonds) = 0.22%;

· LP (AA+ corporate bonds) = 0.30%;

· MRP = 0.1% × (t − 1) where t is the number of years to maturity.

5. Calculate the interest rate for a 1-year AA+ corporate bond.

a. 3.52%

b. 10.48%

c. 6.65%

d. 9.75%

6. Calculate the interest rate for a 5-year AA+ corporate bond.

a. 3.52%

b. 7.60%

c. 5.35%

d. 2.75%

,

Your assignment will be evaluated according to the following Assignment Requirements:

 Guidelines Assignment Grading Criteria Points Content (60%) Response demonstrates a clear understanding of the key elements of assignment questions 12 Response thoroughly covers the question elements in a substantive manner 12 Answers demonstrate critical thinking and analysis 12 Answers are complete and accurate 12 Answers provide adequate information on the given topic 12 Section Total 60 Organization & Calculations (30%) Explanations flow in a logical sequence 7 Answers are correct and address major points of exercise 8 Answers and/or formulas are present and have a logical flow 8 Student explanations address major points 7 Section Total 30 Assignment Format, Writing Style, & Grammar (10%) Sentences are well constructed, complete, clear, and concise 1 The tone is appropriate to the content and assignment 1 Grammar, spelling, and punctuation are correct 2 Assignment is submitted in Micrsoft Word format 5 Section Total 10 Total Score

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