Question1: The Federal Reserve sells 50 billion dollar of short-term U.S. Treasury securities to public, other things held constant, determine the most likely effect on short-term securities prices and interest rates?
[A] Prices and interest rates will both decline.
[B] Prices will decline and interest rates will rise.
[C] Prices and interest rates will both rise.
[D] Prices will rise and interest rates will decline.
[E] There is no reason to expect a change in either price or interest rates.
Question2: Your uncle would like to limit both interest rate [the risk that rising rates will cause the value of his bonds to decline] & his default risk, but he would still like to invest in corporate bonds. He is considering the following bonds. Which of these bonds would best meet his criteria?
[A] BBB bonds with 10 years maturity.
[B] AAA bonds with 5 years maturity.
[C] AAA bonds with 10 years to maturity.
[D] BBB perpetual bonds.
[E] BBB bonds with 5 years maturity.