1. Both Bond Short and Bond Long have 10 percent coupons, make semiannual payments, and are priced at par value. Bond Short has 3 years to maturity, whereas Bond Long has 13 years to maturity. If interest rates suddenly rises by 2 percent, which of the following statements is most correct?
A) The prices of both bonds decline, while Bond Short declines more than Long.
B) The prices of both bonds decline, while Bond Long declines more than Short.
C) Bond Short’s price would increase, while Bond Long’s would decline.
D) Bond Short’s price would decline, while Bond Long’s would increase.
2. You are interested in investing your money in a bank savings account. Which of the following banks would you bank with?
Bank A; 8 percent APR with monthly compounding.
Bank D; 8 percent APR with daily compounding.
Bank B; 8 percent EAR.
Bank C; 8 percent APR with quarterly compounding.