1. A 5%-annual coupon British has a par value of £1,000, matures in five years, and has a yield to maturity of 4%. The current exchange rate is $2.00 = £1.00 and inflation is forecast at 3% in the U.S. and 2% in the U.K. per year for the next five years. If a dollar-based investor used forward contracts to re-denominate this bond into dollars, what would be his rate of return?

A. 5%

B. 6%

C. 7%

D. 8%

2. Stock of Gould and Silber Inc. has a beta of -1. If the market declines by 10%, Gould and Silber would be expected to

A. Rise by 10%

B. Decline by 1%

C. Decline by 10%

D. not respond to market fluctuations