You are a bond portfolio manager at XYZ and the investment committee has asked you to buy a bond with price B1 and sell short a certain quantity N of a second bond with price B2: Bond with price B1 is a 1-year zero coupon bond with a yield-to-maturity of 1% Bond with price B2 is a 2-year zero coupon bond with a yield-to-maturity of 2% The resulting portfolio value is Π = B1- NB2 Questions: 1. How would you choose N to optimally hedge the interest rate exposure of the portfolio Π and thus minimize its sensitivity to interest rate change? Find a numerical value for N

Rate of return douglas keel, a financial analyst for orange industries, wishes to estimate the rate of return for two similar-risk investments, x and y. douglas's research indicates that the immediate past returns will serve as reasonable estimates of future returns. a year earlier, investment x had a market value of $27 comma 000; and investment y had a market value of $46 comma 000. during the year, investment x generated cash flow of $2 comma 025 and investment y generated cash flow of $ 6 comma 770. the current market values of investments x and y are $28 comma 582 and $46 comma 000, respectively. a. calculate the expected rate of return on investments x and y using the most recent year's data. b. assuming that the two investments are equally risky, which one should douglas recommend? why?