Final answer:
The correct answer is 'higher; shorter' because a higher coupon rate means an investor receives cash flows more quickly, reducing the bond's duration.
Step-by-step explanation:
The question relates to the concept of bond duration, which is a measure of the sensitivity of a bond's price to changes in interest rates. Duration can be thought of as the weighted average time the investor has to wait to receive the bond's cash flows. The correct answer to the given question, 'All else equal, the _______ the coupon rate on a bond, the _______ the bond's duration.' is option B) higher; shorter. This is because the higher the coupon rate, the more quickly the investor receives cash flows, thus reducing the time and exposure to interest rate risk. As a result, the bond's duration is shorter when the coupon rate is higher.