1.

A replicating portfolio...

Select one:

a. ... gives the exact same cash flows as the asset it replicates

b. ...must have the same risk and payoff as the asset it replicates

c. ... can be used to find arbitrage-free prices

d. ... is a synthetic version of the asset it replicates

e. All of the options are correct.

4.

______ can occur if _____.

Select one:

a. Arbitrage; the law of one price is not violated

b. Arbitrage; the law of one price is violated

c. Low-risk economic profit; the law of one price is not violated

d. Low-risk economic profit; the law of one price is violated

e. Arbitrage and low-risk economic profit; the law of one price is violated

5.

You purchased an annual interest coupon bond one year ago that had ten years remaining to maturity at that time. The coupon interest rate was 11%, and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 9%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 9%, your annual total rate of return on holding the bond for that year would have been

Select one:

A. 8.00%.

B. 9.00%.

C. None of the options are correct.

D. 9.82%.

E. 11.00%.