EXHIBIT 1 Fixed-Rate Bonds Issued by Pro Star, Inc.

Bond	Maturity	Coupon	Type of Bond
Bond #1	1 October 20X3	4.40% annual	Option-free
Bond #2	1 October 20X3	4.40% annual	Callable at par on 1 October 20X1 and on 1 October 20X2
Bond #3	1 October 20X3	4.40% annual	Putable at par on 1 October 20X1 and on 1 October 20X2

All else being equal, a rise in interest rates will most likely result in the value of the option embedded in bond #3:

	A.	increasing
	B.	decreasing
	C.	remaining unchanged

QUESTION 3

1. EXHIBIT 1 Fixed-Rate Bonds Issued by Pro Star, Inc.

   Bond	Maturity	Coupon	Type of Bond
   Bond #1	1 October 20X3	4.40% annual	Option-free
   Bond #2	1 October 20X3	4.40% annual	Callable at par on 1 October 20X1 and on 1 October 20X2
   Bond #3	1 October 20X3	4.40% annual	Putable at par on 1 October 20X1 and on 1 October 20X2

   A fall in interest rates would most likely result in:

   	A.	a decrease in the effective duration of bond #3
   	B.	bond #3 having more upside potential than bond #2
   	C.	a change in the effective convexity of bond #3 from positive to negative