New stocks be to achieve target required rate of return

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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

Reference no: EM131904051

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