1. An investor holds a bond with a modified duration of 6.83. She expects an interest rate increase in the near future that is more than market expectations. In order to capitalize on her expectation, should she sell the bond she has now and purchase with a lower or higher duration? Why?

2. A bond has a modified duration of 5.43 and a full price of 108.397. An investor estimates the price change of the bond if rates decease by 25 basis points (bps). What is the new price of the bond as estimated using duration? Will the actual price most likely by greater than or less than the estimated price?