Griffiths
FINANCE Jessica 3100 B
7968
November 9, 2011
Homework #3
Q.1 B
Q. 2 A Managing in Financial Markets
a. Over a one-year horizon the 10-year coupon bonds will not be affected, the 20-year
zero coupon bonds will be affected and the one-year Treasury securities will not be
affected because it is such a small amount of time.
b. If my expectations are correct, the 20 year zero coupon bonds will have the highest
return over the one year horizon because it is the riskiest and deals with the highest
amount of money.
c. reason One I might not select the investment with the highest expected return is
because if my expectations are not correct, I will lose a lot more money that the other
investments, due to the riskiness.
Q. 3 A
A.
b. The interest rate risk should adversely affect Cardinal because an increased risk on a
required rate of return on a bond and will lower its present value
c. Cardinal expects to be adversely affected by the exchange rate risk because foreign
bonds would be more diversified to decrease risk of exchange risk