Question

Circle the correct answer. Which of the following statements best describes what would be expected to happen as you randomly add stocks to your portfolio? a. Adding more stocks to your portfolio reduces the portfolio's company- specific risk. b. Adding more stocks to your portfolio reduces the beta of your portfolio. c. Adding more stocks to your portfolio increases the portfolio's expected return. d. Statements a and care correct. e. All of the statements above are correct. Frank Lewis has a 30-year, $100,000 mortgage with a nominal interest rate of 10 percent and monthly compounding. Which of the following statements regarding his mortgage is most correct? a. The monthly payments will decline over time. b. The proportion of the monthly payment that represents interest will be lower for the last payment than for the first payment on the loan. c. The total dollar amount of principal being paid off each month gets larger as the loan approaches maturity. d. Statements a and care correct. e. Statements b and care correct Your family recently obtained a 30-year (360-month) $100,000 fixed-rate mortgage. Which of the following statements is most correct? (Ignore all taxes and transactions costs.) a. The remaining balance after three years will be $100,000 less the total amount of interest paid during the first 36 months. b. The proportion of the monthly payment that goes towards repayment of principal will be higher 10 years from now than it will be this year. c. The monthly payment on the mortgage will steadily decline over time. d. All of the statements above are correct. c. None of the statements above is correct. o te e

Answer 1

1.
Option A because randomly adding stocks only decreases company-specific risk and does not change expected return/beta

2.
Option E as monthly payments are fixed and interest as proportion decreases and principal as proportion increases

3.
Option B as monthly payments are fixed and interest as proportion decreases and principal as proportion increases