1. a)When comparing two bonds with the same characteristics, the higher the coupon rate, the higher
2. the interest rate risk.
3. b)An increase in the required return on a stock will decrease its market value, all else the same.

2.(14 points)Ted's Co. offers a six-year semi-annual 8% coupon bond. The market interest rate is 10% annually. What is the current price of this $1,000 face value bond?

3.(14 points)You ran a little short on your vacation. You have two options:

• Option 1: Put $1,000 on your credit card. The annual interest rate on the credit card is 12% compounded monthly.
• Option 2: Take out a $1,000 short-term loan from CIBC with annual percentage rate of 12.4% compounded quarterly.

1. a)Which option would you choose? Why?
2. b)Let's say you conclude that you better off using your credit card (Option 1). You can only
3. afford to make the payment of $20 per month. How long will you need to pay off the $1,000?