Suppose that your aunt and uncle each separately offers you a bond. Both bonds have the same maturity T (in years) and face value F. However, the coupon of your aunts bond are a1, . . . , aT , where ai = ai1 d for some d > 0 and i {2, . . . , T}. The coupon of your uncles bond is c every year, where c is the average of the ai s, i.e., c = 1 T PT i=1 ai . It turns out that both your aunt and uncle ask for $100 for the bond. Given that you have only $100 to use, which one would you choose? Assume the interest rate r (0, 1).

Suppose that your aunt and uncle each separately offers you a bond. Both bonds have the same maturity T in years) and face value F. However, the coupon of your aunt's bond are a1, ..., at, where ai = Qi-1-d for some d > 0 and i {2,...,T}. The coupon of your uncle's bond is c every year, where c is the average of the ai's, i.e., c= = 1 E1-14;. It turns out that both your aunt and uncle ask for $100 for the bond. Given that you have only $100 to use, which one would you choose? Assume the interest rate rie (0,1)