1. The relationship between bond price and yield to maturity is convex. Therefore...
A. since the bond pricing function is negatively sloped, when the yield increases the price decreases at a declining rate.
B. since the bond pricing function is positively sloped, when the yield increases the price decreases at a declining rate.
C. since the bond pricing function is negatively sloped, when the yield declines the price decreases at a declining rate.
D. since the bond pricing function is negatively sloped, when the yield increases the price decreases at an increasing rate.
2. RKKL is considering buying a company that has no leverage but an asset beta of.7. The market risk premium is 6% and the risk-free rate is 2%. If they plan to use 75% debt, what will the required rate of return be?
A. 18.8%
B. 6.2%
C. 8.0%
D. 14.6%