Bond A is a one-year instrument and Bond B is a two-year instrument. The bonds have very similar default risk and income tax treatment. Currently, the following yields exist on these bonds.

Bond	Yield
A	5.00%
B	7.00%

Part 2If (holding all else equal) the interest rate that investors expect on one-year instruments next year suddenly

decreases

to

8.75%,

investors will become_______________________ two year bonds today. This will cause the yield on two year bonds today to ________________.

Blank 1: more likely to buy,

more likely to sell,

neither more likely to buy nor more likely to sell

Blank 2: increase

decrease

remain unchanged