negative beta: W nat does the CAPM predict about the expected return on such an asset? Can you give an explanation for your answer? (5marks) - Question 2 (20 marks): a. The Faulk Corp. has a 6 percent coupon bond outstanding. The Gonas Company has a 14 percent bond outstanding. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 10 percent. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lowe coupon bonds? (4 marks) b. Interest rate risk is often explained by using the concept of a teeter-totter. Explain intere rate risk and how it is related to the movements of a teeter-totter. ( 4 marks) c. Classify the following events as mostly systematic or mostly unsystematic. Is distinction clear in every case? (12 marks) 1. Short-term interest rates increase unexpectedly. TMA II | Course Code: B874 TMA01 Fall 2022-2023 Semester