Julie Cupples is in the process of evaluating her portfolio. Help her answer the following questions:

a.She is considering two bonds for addition to her portfolio. Bond A has a modified duration of 8.0. Bond B has a modified duration of 3.0. Julie expects interest rates to fall over the next three years. Based solely on this information (assume the investments have equivalent bond ratings), which bond should she purchase?

b.Julie is currently in the 22 percent marginal tax bracket. She can purchase a AAA corporate bond with a 4 percent yield to maturity. Alternatively, she can purchase a AAA municipal bond that yields 3.25 percent. Which is the better option for Julie?

c.Julie is a gambler. She thinks the value of a stock she has been tracking is going to drop dramatically over the next three months. Julie does not have enough money in her brokerage account to short the stock. What strategy can she use to bet that the price of the shares will fall without having to hold shares directly?

d.Julie is interested in buying a real estate investment trust for her portfolio. The REIT’s price is currently $95 per share. Julie uses a value investing approach when managing her portfolio—she likes bargains. If the stock currently pays a $4 dividend should she make the purchase if her required rate of return is 9 percent and the dividend is growing at 5 percent annually?