1. (3 points) Consider two bonds, A and B without default risk. They both have a YTM of 10%, three years until maturity time, and a face value of $1000. Bond A is a premium bond and bond B is a discount bond. Assume that YTM remains at 10% for both bonds throughout the next year. Which of the following statement is correct?

1. Bond A price will decrease over the next year and Bond B price will increase over the next year.
2. Bond As coupon rate is less than bond Bs coupon rate next year.
3. Bond A and Bond B will become par bonds at the end of the next year.
4. The holding period return of bond A over the next year is higher than the holding period return of bond B over the next year.
5. Investors will strictly prefer bond A to bond B.
6. None of the above.

1. (3 points) Which of the following assets can be considered as risk-free?

I. A 3-month Treasury bill issued by US Department of Treasury.

II. A 10-year Treasury bond issued by US Department of Treasury.

III. A 15-year municipal bond issued by the city of New York.

IV. A 15-year corporate bond issued by Apple Inc.

1. I only
2. I and II only
3. I, II, and III only
4. I, II, III, and IV