1. DEF bonds mature in 7 years and have a duration of 6.5 years. These bonds are priced to yield 10%. If interest rates decrease by 50 basis points, what will be the percentage change in the value of DEF bonds?
A) .0295
B) -.0295
C) .0325
D) -.0325
E) none of the above
2. You are considering investing in one of two? well-diversified portfolios. Portfolio A has an expected return of? 8% and a beta of 1.35 while Portfolio B has an expected return of? 6% and a beta of 0.80. Assuming that you are a rational? risk-averse investor and the? risk-free rate is? 2%, which of the two portfolios should you choose and? why?
A. Portfolio A because it has a higher risk premium.
B. Portfolio B because it has a higher? reward-to-risk ratio.
C. Portfolio B because it has less market risk.
D. Portfolio A because it offers a greater reward per unit of risk.