1. Suppose you have two investment options: investment A and investment B. Investment A has a higher standard deviation than that of Investment B. However, the possible returns on investment A are higher than what would ever be possible from investment B. Which investment resembles a stock and which one resembles a bond? Explain.

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3. All else constant, who would benefit more from investing in the stock market? An individual in her 30's or an individual in his 60's?

4. A company of interest paid dividends of $25 this year and whose dividends you expect to grow at 6 percent a year. The risk-free rate is 4 percent and you require a risk premium of 10 percent. If the price of the stock in the market is $250 a share, should you buy it?

5. Memories of the 2007-2009 financial crisis have made you more risk averse, doubling the risk premium you require to purchase a stock. Suppose that your risk premium before the crisis was 4 percent and that you had been willing to pay $412 for a stock with a dividend payment of $10 and expected dividend growth of 3 percent. Using the dividend discount model, with unchanged risk-free rate, dividend payment and expected dividend growth, what price (rounded to the nearest dollar) would you now be willing to pay for this stock?

Consider the following information on the stock market in a small economy. a. Compute a price-weighted stock price index for the beginning of the year and the end of the year. What is the percentage change? b. Compute a value-weighted stock price index for the beginning of the year and the end of the year. What is the percentage change