Question 3 point possible (graded) Bond L: 2-year zero coupon bond, pays $200 at maturity Bond M: 1-year zero coupon bond, pays $10 at maturity Bond N: 2-year zero coupon bond, pays $10 at maturity Bond O: 2-year, 5% coupon (paid annually) bond, face value $200 Suppose you combine Bonds L, M, and N to produce a Portfolio LMN, and that the Yield to Matu rity is the same for all three bonds and the portfolio considered. Which of the following is true? Price of LMN > Price of O Price of LMN = Price of O Price of LMN Duration of bonds A and B Question 10 point possible (graded) A certain investor who will hold a bond to maturity and cares only about the return to his investment, must choose among three different 5-year sovereign bonds issued by the Republic of Fredonia: (i) a premium bond, (ii) a discount bond, (ii) a par bond. Which of the following is true about the investor's preferences? He will prefer the premium bond over the other two, because it is more valuable He will prefer the discount bond, because it is cheaper He will prefer the par bond, because it is appropriately priced He will be indifferent to all three, because they are equivalent in his analysis