Are the following statements true or false? Briefly explain your answers.

a) If the ROE of a company is higher than its discount rate r, it would be in shareholders interest to retain earnings in the company. (5 marks)

(b) Duration is a good measure of interest rate risk if change in yield is small and rates change in a parallel fashion. Satisfying these two assumptions imply that two portfolios with the same duration will react in exactly the same way to a given change in yield. True or false? Briefly explain your answer.