1. Suggest if investors who expect interest rates to decrease would prefer to invest in variable-rate or fixed-rate bond. On the issuer side, would a firm that needs to borrow funds consider issuing variable-rate bonds if it expects interest rates to decrease in the future? Could the firm in such conditions benefit from issuing low- or zero-coupon bonds? Explain your answer in detail.

2. Explain the use of (a) balloon-payment mortgages (b) graduated-payment mortgages and (c) growing-equity mortgages. Why might financial institutions choose to offer these types of mortgages? What type of homeowners would prefer this type of mortgage?