1. Assume you own a 2-year US Treasury Note with a 5% coupon and a 7-year US Treasury Note with a 0% coupon. If market interest rates decrease by 100 basis points in the 2-year maturity and declined by only 75 basis points in the 7-year maturity, which bond would experience the smallest market value change?

a. 5% US Treasury due in 2 years

b. 0% US Treasury due in 7 years

c. Both would change by the same amount

d. Prices would not change since the coupons are fixed

2. If you short a stock, you will profit if

a. the stock price increases.

b. the stock price stays the same.

c. the stock price falls.