Which of the following best characterizes the Risk Structure of interest rates?

It examines how interest rates change for bonds with similar terms to maturity but varying levels of credit default risk

It examines how interest rates change for bonds with similar levels of credit default risk, but varying terms to maturity

It examines how Interest Rate Risk varies for bonds with different terms to maturity and coupon rates

It examines the credit spread between interest rates and risk free rates of return

It examines the risk to investors the inflation poses to their purchasing power

Consider the following two bonds, creatively titled Bond 1 and Bond 2.If it helps, you may think of them as Sean Connery and David Niven.

Bond

Coupon Rate

Term to Maturity

1

10%

5 Years

2

10%

30 Years

As it happens, the Yield to Maturity for both bonds is 8%.If the Yield to Maturity were to fall to 7%, which bond would experience the larger change in price?

Bond 1, because it's coupon rate will shield it from YTM shifts

Bond 1, because the shorter term to maturity will make the bond's price more sensitive to shifts in YTM

Bond 2, because it's coupon rate will shield it from YTM shifts

Bond 2, because the longer term to maturity will make the bond's price more sensitive to shifts in YTM

Neither, as both bond would fall by the same amount