HW_3_Solutions_Chapter_4[1]

HW_3_Solutions_Chapter_4[1] - Chapter 4 Why Do Interest...

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Chapter 4 Why Do Interest Rates Change? s Answers to End-of-Chapter Questions 1. a. Less, because your wealth has declined; b. more, because its relative expected return has risen; c. less, because it has become less liquid relative to bonds; d. less, because its expected return has fallen relative to gold; e. more, because it has become less risky relative to bonds. 2. a. More, because your wealth has increased; b. more, because it has become more liquid; c. less, because its expected return has fallen relative to Polaroid stock; d. more, because it has become less risky relative to stocks; e. less, because its expected return has fallen. 4. Purchasing shares in the pharmaceutical company is more likely to reduce my overall risk because the correlation of returns on my investment in a football team with the returns on the pharmaceutical company shares should be low. By contrast, the correlation of returns on an investment in a football team and an investment in a basketball team are probably pretty high, so in this case there would be little risk reduction if I invested in both. 7.
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This note was uploaded on 09/07/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

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HW_3_Solutions_Chapter_4[1] - Chapter 4 Why Do Interest...

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