Which of the following is true? explain why.

1. Bonds C and Z both have a $1,000 par value and 10 years to maturity. They have the same default risk, and they both have a yield of 8%. If Bond C has a 15% annual coupon and Bond Z a zero coupon, then Bond Z will be exposed to more interest rate risk, which is defined as the percentage loss of value in response to a given increase in the going interest rate.

2. The interest rate paid by the state of Florida on its debt would be lower, other things held constant, if interest on the debt were not exempt from federal income taxes.

3. Given the conditions in the first statement, we can be sure that the price of Bond Z would be greater than that of Bond C