1.Assume there are two bonds that are currently selling at par. Bond A is a $1000, 4-year

bond with a 10 per cent coupon rate (annual payments), and Bond B is a $1000, 3-year

bond with a 5 per cent coupon rate (annual payments). Discuss which bond is likely to

have a lower interest rate risk.

a. Discuss the determinants of the equilibrium rate of interest in the interest rate

quantity diagram. Are they upward sloping or downward sloping? Why is it the case?

b. Using the diagram of the equilibrium rate of interest to discuss the likely movement of

interest rates during COVID-19 period.