The slope of the security market line equals:

A furniture store is offering free credit on purchases over $1,000. You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year. The store next door offers an identical television for $3,650 but does not offer credit terms. Which statement below best describes the cost of the “free” credit?

The idea that investors on average have earned a higher return from common stocks than from Treasury bills supports the view that

Formula ProblemHow much would you need when you retire to provide a $4,000 monthly check that will last for 30 years? Assume that your savings can earn 0.4% a month.

When comparing a highly liquid bond with a comparable but less liquid bond, the highly liquid bond is most apt to have:

The yield curve depicts the current relationship between:

Which one of the following bonds would be likely to exhibit a greater degree of interest rate risk?

Part II: Short Problems begins here–Answer 5 of the following 9 questions @ 6 points each. Select yes if you understand the instructions, and continue the exam.

Calculator Problem Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 9.5% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Formula ProblemYou receive a $100,000 trust fund when you turn 21. You choose to invest it in a 30-year instrument that has a graduated payment scheme. For the first ten years you have a 4% yield compounded semiannually. For the second 10 years you have a 6% yield compounded quarterly. For the final 10 years, you have an 8% yield compounded monthly. What amount will you have at the end of 30 years?