11. Suppose you pay $9500 for a S10,000 par Treasury bill maturing in effective
ID: 2783216 • Letter: 1
Question
11. Suppose you pay $9500 for a S10,000 par Treasury bill maturing in effective annual rate of return (annualized holding period retur that you hold the bill until maturity? A. 2.07% B. 1.35% C. 2.89% D. 8.95% n)ro for this investment, assuming 12. Which of the following statements is/are true about a risk averse investor? A. A risk averse investor dislikes risk. B. A risk averse investor requires compensation in the form of a positive risk premium for bearing risk. C. A risk averse investor will not undertake high risk investments. D. A and B E. A and C 13 There are only two investment options available Option I has an expected return of 10% and a standard deviation of 1 5%. Option 2 has an expected return of 10% and a standard deviation of 40%, which option would be chosen by a risk loving investor? A. Option 1 B. Option 2 C. A risk loving investor would be indifferent between these options D. Not enough information is provided.Explanation / Answer
11.
Effective YTM = [($10,000 / $9,500) ^ (30 / 12)] - 1
= (1.0526 ^ 0.40) - 1
= 1.0207 - 1
= 2.07%
Effective YTM of treasury bill is 2.07%.
Option (A) is correct answer.
12.
A risk averse investo dislike risk and does not wants to invest in high risk investment.
Option (A) and option (C) is correct answer.
13.
Both investment provides similar return but risk level of both investment is different. So a risk loving investor as well as risk averse investor will choose the investment that has lower risk, since both provide similar return.
Option 1 should be chosen.
Option (A) is correct answer.
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