1. If a bond is downgraded by a rating agency, it is likely that:

Its yield will go down and it price will go down.

Its yield will go down and its price will go up.

Its yield will go up and it price will go up.

Its yield will go up and its price will go down.

2. A zero coupon bond with a face value of $1,000 is issued with an initial price of $430.50. The bond matures in 13 years. What is the implicit interest, in dollars, for the first year of the bond's life? Use semiannual compounding.

$17.36

$14.42

$8.68

$28.83

$15.14