1. Bond A has a time to maturity of 16 years and a duration of 12.98 years. Bond B has a time to maturity of 15 years and a duration of 13.12 years. Which bond has more interest rate risk and why?
A. Bond A because it has the longer time to maturity
B. Bond B because it has the shorter time to maturity
C. Bond A because it has the shorter duration
D. Bond B because it has the longer duration
2. The individual demand for a product has been estimated to be qd=32−2p, the firm’s cost function is C(q)=4q+25. What is the optimal two-part tariff for this monopolist?
A. A price per unit of $25 and a fixed fee of $144.
B. A price per unit of $4 and a fixed fee of $288.
C. A price per unit of $4 and fixed fee of $144.
D. A price per unit of $4 and fixed fee of $32.
E. None of the above.