Assume that a 10-year corporate bond has a 12% annual coupon, while a 15-year corporate bond has an 8% annual coupon. Assume also that both securities have a 10% yield to maturity. Which of the following statements is CORRECT?

a.

If the yield to maturity on both bonds remains at 10% over the next year, the price of the 10-year bond would increase, but the price of the 15-year bond would fall.

b.

If interest rates decline, the prices of both bonds would increase.

c.

The 10-year bond would sell at a discount, while the 15-year bond would sell at a premium.

d.

The 10-year bond would sell at a premium, while the 15-year bond would sell at par.

E. If interest rates decline, the prices of both bonds would decrease.

The risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium is positive. Which of the following statements is CORRECT?

	a.	Stock B's required rate of return is twice that of Stock A.
	b.	If Stock B's required return is 11%, then the market risk premium is 5%.
	c.	If the risk-free rate remains constant but the market risk premium increases, Stock A's required return will increase by more than Stock B's.
	d.	If the risk-free rate increases but the market risk premium stays unchanged, Stock B's required return will increase by more than Stock A's.
	e.	If Stock A's required return is 11%, then the market risk premium is 5%.