Please explain answer. Option 1 is incorrect. Question 24Which of the following statements is correct?Shorter term securities have less reinvestment riskO Higher coupon securities have less reinvestment riskBoth b and cO Longer term securities have less reinvestment risk

Reinvestment risk is that risk in which there exists a probability that the concerned investor will…

Answered: Please explain answer. Option 1 is…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 14MC

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Which of the following statements is correct? (explain your answer) Shorter term securities have less reinvestment risk Higher coupon securities have less reinvestment risk Both B and C Longer term securities have less reinvestment risk
Suppose the risk-free rate goes up to 7%.What effect would higher interest rates have onthe SML and on the returns required on highrisk and low-risk securities? (2) Suppose insteadthat investors’ risk aversion increased enoughto cause the market risk premium to increase to8%. (Assume the risk-free rate remains constant.)What effect would this have on the SML and onreturns of high- and low-risk securities?
Question No 02: Bonds and stocks are two primary securities traded on approximately all stock exchanges of the world because of their potential, reliability, and better trade volume. Besides all these pro, the risk-taking behavior of different investors and the features associated with each class of security are vital ones that attract investors for earning a handsome return. Stocks are considered riskier with a higher return, whereas bonds accounted for low-risk investment with a guaranteed return. However, most investors formulate a portfolio of their investment with a combination of bonds and stocks for optimal return with a lesser degree of risk due to the diversification edge involved in it. The formulation of such a portfolio lies in market factors and company-specific factors. The optimal return only can be achieved by a better judgment of both factors and evaluation of intrinsic prices of securities by some…
12 Banks use to hedge against risk through options and futures contracts in order to:* A. Reduce risk B. Manage risk C. Avoid risk D. Transfer risk
49 Which of the following statements is the most accurate? 49.a. A bond's discount to maturity is smaller than the coupon rate if it buys for less than par.b. A bond's actual yield would be smaller than the yield to maturity if it sells at par.c. Assuming both bonds are kept to maturity and have the same risk, a bond selling at greater than par for a 10-year maturity would have a lower current yield and a higher capital gain than a bond selling at par.d. Both statements a and c are true.e. None of the above assertions are true.
Security A, standard deviation = 25% beta = 1.5 Security B, standard deviation = 40% beta = 1/3 If both securities have the same return, which should I invest in? Explain using knowledge of Capital Asset Pricing Model
24 From the viewpoint of the investor, which of the following securities provides the least risk? Group of answer choices Debentures Mortgage bond Subordinated debenture Income bond
5 The measure of risk is called: Group of answer choices Beta The market rate of return The rate provided by short term government securities The rate provided by long term government securities
In Chapter 7, we saw that if the market interest rate, rd, for a given bond increased, the price of the bond would decline. Applying this same logic to stocks, explain (a) how a decrease in risk aversion would affect stocks prices and earned rates of return, (b) how this would affect risk premiums as measured by the historical difference between returns on stocks and returns on bonds, and (c) what the implications of this would be for the use of historical risk premiums when applying the SML equation.
5. A short duration bond portfolio is a. less risky than a long duration bond portfolio b. more risky than a long duration bond portfolio c. same risk as a long duration bond portfolio d. none
34. When interest rate decreases, the portfolio manager should a. decrease the duration of the bond portfolio b. increase the duration of the bond portfolio c. do nothing d. none

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