1. a) What would be the expected price of each bond one year from now if interest rates were 8 percent?
b) What would be the expected price two years from now if interest rates initially fall but subsequently rise to 12 percent at the end of the second year?
2. If interest rates were expected to fall and not rise back to 12 percent, which alternative is best?
3. If interest rates were expected to decline initially and then rise, which alternative should be selected?
4. If bond A were selected, what would happen after a year elapses? What decision must then be made?
