The four steps to determining the price of a bond are:
A) determine the amount and timing of the present cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.
B) determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the future value of the lump-sum principal and the annuity stream of coupons, and add the FVs of the principal and coupons.
C) determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and multiply the PVs of the principal and coupons.
D) determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.
Question 2
You own a portfolio that is equally invested in three assets:
(1 ) the risk-free asset; (2 ) Stock 1; and (3 ) Stock 2. Stock 1 has a beta of 1.9 and the portfolio has the same risk as the market portfolio.
What is the beta of Stock 2 in the portfolio?
A) 1.0
B) 1.1
C) 1.2
D) 1.3
E) 1.4
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