1. A bond currently sells for $1,200, which gives it a yield to maturity of 8%. Suppose that if the yield increases by 25 basis points, the price of the bond falls to $1,155. What is the Macaulay duration of this bond?

2. Currently, the term structure is as follows: One-year bonds yield 8.50%, two-year zero-coupon bonds yield 9.50%, three-year and longer maturity zero-coupon bonds all yield 10.50%. You are choosing between one, two, and three-year maturity bonds all paying annual coupons of 9.50%. You strongly believe that at year-end the yield curve will be flat at 10.50%. Which bond you would buy?