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Question 1 An investor holds two bonds (the same in all characteristics except maturity), one...

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Question 1 An investor holds two bonds (the same in all characteristics except maturity), one with 5 years until maturity and the other with 15 years until maturity. The price of both bonds is at par today. Which of the following is more likely if the interest rate suddenly decreases by 1 %? A. The 5-year bond will increase more in price B. The 15-year bond will increase more in price. C. The change in bond prices will be about the same. D. The 5-year bond will decrease more in price. E. The 15-year bond will decrease more in price. Question 2 Question #2 to # 3 use the following setup: The price of a one-year zero coupon bond is $980.50 today. Its face value is $1000. What is the (nom inal) rate of return if you hold the bond from now until its maturity? % Write your answer as of APR in the unit of percentage. Question 3 Suppose the Inflation rate is 2.2%, what is the real rate of return from the bond? Use your answer from #2 to solve this question. A.2.52% B.-0.21 % C.4,18% D.3.85%

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