1.Consideraconvertiblebondthatistradingataconversionpremiumof20percent.Ifthevalueoftheunderlyingstockrisesby25percent,thevalueofthebondwill:A.risebylessthan25%.B.riseby25%.C.risebymorethan25%.D.remainunchanged.Correctanswer:ATheconvertiblebondimplicitlygivesbondholdersacalloptionontheunderlyingstock.Thedeltaofthisoptionwillvarybetween0(whentheoptionisextremelyoutofthemoney)and1(whentheoptionisextremelyinthemoney).Inthiscase,thebondistradingataconversionpremiumof20%sothedeltamustbesomewherebetweenzeroandone,andhencethepriceoftheconvertiblebondwillrisebylessthanthepriceoftheunderlyingstock.2.Ifacashflowof$10,000intwoyears'timehasaPVof$8,455,theannualpercentagerate,assumingcontinuouscompoundingisCLOSESTto:A.8.13%.B.8.39%.C.8.75%.D.8.95%.Correctanswer:BContinuouslycompoundedrate=ln(FV/PV)/N=ln(10000/8455)/2=8.39%.3.Thecurrentvaluesofafirm'sassetsandliabilitiesare200millionand160millionrespectively.Iftheassetvaluesareexpectedtogrowby40millionandliabilityvaluesby30millionwithinayearandiftheannualstandarddeviationofthesevaluesis50million,thedistancefromdefaultintheKMVmodelwouldbeclosestto:A.0.8standarddeviations.B.1.0standarddeviations.C.1.2standarddeviations.D.Cannotnotbedetermined.Correctanswer:BDistancefromdefault=(Expectedvalueofassets-Expectedvalueofliabilities)/Standarddeviation=(240-190)/50=1.0.4.Whatisthesemiannual-paybondequivalentyieldonanannual-paybondwithayieldtomaturityof12.51percent?A.12.00%.B.11.49%.C.12.51%.D.12.14%.Correctanswer:D:Thesemiannual-paybondequivalentyieldofanannual-paybond=2*[(1+yieldtomaturityontheannual-paybond)0.5-1]=12.14%.5.Youwanttotestatthe0.05levelofsignificancethatthemeanpriceofluxurycarsisgreaterthan$80,000.Arandomsampleof50carshasameanpriceof$88,000.Thepopulationstandarddeviationis$15,000.Whatisthealternativehypothesis?A.Thepopulationmeanisgreaterthanorequalto$80,000.B.Thepopulationmeanislessthan$80,000.C.Thepopulationmeanisnot