Question 1
A speculative investor looking for large capital gains from declining interest rates would seek out bonds with
◦ high coupon rates and distant maturities.
◦ high coupon rates and short maturities.
◦ low coupon rates and short maturities.
◦ low coupon rates and distant maturities.
Question 2
As applied to bonds, duration refers to
◦ the average maturity of a diversified portfolio of corporate bonds.
◦ the point in the life of a bond when its price risk exactly offsets its reinvestment risk.
◦ the average price and annual reinvestment rate of return for a bond.
◦ the point in the life of a bond when its yield-to-maturity equals its expected yield.