Question 1: Which of the following is most correct?
a. The yield on a 2 year corporate bond will always exceed the yield on a 2 year treasury bond.
b. The yield on a 3 year corporate bond will always exceed the yield on a 2 year corporate bond.
c. The yield on a 3 year treasury bond will always exceed the year on a 2 year treasury bond.
d. All of the answers above are correct.
e. Statements a and c are correct.
Question 2: If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value?
a. a 10 year zero coupon bond
b. a 10 year bond with a 10 percent semiannual coupon
c. a 10 year bond with a 10 percent annual coupon
d. a 5 year zero coupojn bond
e. 5 year bond with a 12 percent annual coupon