1. Miami Lab Inc., an investor-owned healthcare enterprise, has a beta of 0.88. The T-bond rate (a proxy of the risk-free rate of return) is 5.25%. Investors expect the average annual future return on the market to be 11.50%. Using the SML, what is the required rate of return on Miami Lab stock?
A. 10.48%
B. 10.75%
C. 11.02%
D. 11.29%
2. Over the span of a decade, interest rates climbed. Which of the following statements is true?
a. A bond for that decade would out-perform a 5-year bond.
b. A 20-year bond during that decade would out-perform a 30-year bond.
c. The 10-year bond has the lowest interest rate risk.
d. The value of the 5-year bond would rise more dramatically than that of the 10-year bond.