1. You are considering two bonds. Bond M has a 11% annual coupon while Bond N has a 8% annual coupon. Both bonds have a 9% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT?
The price of Bond N will decrease over time, but the price of Bond M will increase over time.
The prices of both bonds will remain unchanged.
The price of Bond M will decrease over time, but the price of Bond N will increase over time.
The prices of both bonds will increase by 7% per year.
The prices of both bonds will increase over time, but the price of Bond M will increase at a faster rate.
2. A mutual fund manager has a $40 million portfolio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. The manager expects to receive an additional $12.50 million which she plans to invest in additional stocks. After investing the additional funds, she wants the fund's required and expected return to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return?
2.93
3.36
3.07
2.19
2.49