Question
Just wanting the answers, no need for an explanation for each. These are part of a study guide questions for an exam I have been studying for and I want check if my answers are correct
Multiple Choice Questions: 2 points each. 1. For a risk averse investor: a. a risk-free investment is always preferable to a risky investment. b. with sufficient return, risky investments may be chosen. c. investments decisions are based only on expected returns. d. a risky investment will not be acceptable. Our assumption about financial market participants is that: a. the majority are risk averse. b. the majority are risk neutral. c. the majority are risk lovers. d. there are approximately equal numbers of risk averse and risk neutral agents. -3. If the annual interest rate is 5% (05), the price of a six-month Treasury bill per $100 of face value would be: a. $98.79 b. $97.59 c.$95.00 d. $98.75 4. As income rises, we expect the following in the bond market: a. the bond demand curve shifting left. b. the bond supply curve shifting left. c. bond prices decrease. d. bond prices increase. e. only a, b, and c. . Interest-rate risk can result from: a. bond prices being fixed over the life of the bond. b. an individual's investment horizon being longer than a bond's maturity. c. the fact that most people hold bonds until they mature. d. a fall in inflation uncertainty 6. The risk spread on a bond is: a. the difference between a bond's purchase price and selling price. c. less than 0 (zero) for a U.S. Treasury bond since it will never technically default. c. assigned by a bond-rating agency d. none of the above. 7. If the quantity of bonds demanded exceeds the quantity of bonds supplied, bond prices: a. would rise and yields would fall. b. would fall and yields would rise. c. would rise but yields will remain constant. d. would fall and yields would fall. 8. An investment with a small spread between maximum and minimum payoffs will generally have a. a high expected returm. b. a low standard deviation. c. a high value at risk d. both a high expected return and a high value at risk.
Explanation / Answer
1. a. a risk-free investment is always preferable to a risky investment
The reason is that a risk-averse investor will always avoid risk at any cost and will always prefer an investment having no-risk over an investment with risk.
