Investment Section 4-6

Question 1

What are examples of business risk?

1. Interest Rates
2. Reinvestment
3. Inflation
4. Change in manufacturing
5. Leveraged buyout
6. CEO charged with unethical business practices

Answer 1

4, 5, 6

Question 2

What does CAPM measure?

Answer 2

CAPM measures an investment’s beta and residual variance.

Question 3

When the market yield is 8%, which of the following equally rated bonds will have the potential for the greatest relative price volatility with regard to changes in interest rates?

Answer 3

The bond with the lowest coupon and highest maturity is subject to the greatest price volatility