Brilliant ANSWERS ONLY

Chapter 4

10. Under what conditions is an investor exposed to interest rate (or price) risk?

Reinvestment (rollover) risk?

Chapter 5

1. How will an increase in perceived credit risk on a risky bond affect its price? Its

yield? How will it affect the price and yield of a riskless bond?

3. How does the spread between a Caa‐rated bond over a Aaa‐rated bond vary

over the business cycle? Why? A Aaa‐rated bond over a comparable maturity

Treasury security?

Chapter 6

2. Why do investors hold portfolios of securities instead of a single security? Would

a portfolio manager ever consider acquiring a security that, by itself, is very

risky? Why or why not? What would have to be true of that security?

6. What is an efficient financial market? A random walk? Does the evidence, on

balance, favor market efficiency? Random walks?