8.) Consider the following two bonds:

	Bond A	Bond B
Maturity	10 Years	15 Years
Coupon	5%	5%
Face Value	$1,000	$1,000

If the YTM of Bond A is 6% the price will be:

a. Above par

b. At par

c. Below par

If interest rates change by 1% the price of Bond A will:

a. Change by more than the price of Bond B

b. Change by less that the price of Bond B

c. Change by the same amount as the price of Bond B

d. Remain unchanged

Suppose that 9 years and 11 months from now, the YTM (on both bonds) is 7%. Which bond should have the higher price at that pint in time?

a. Bond A

b. Bond B

c. Both bonds will have the same price

Suppose investors perceive that the default risk of Bond B has increased. The expected return on Bond B will now be

a. Higher that its Yield to Maturity

b. Lower than its Yield to Maturity

c. Equal to its Yield to Maturity