1) If the Market interest rate goes down for bonds, which type of risk the bondholders are expected to face? Briefly explain your understanding in this regard.

2) Diversification works because I. Company specific risk exists; II. Forming stocks into a portfolio reduces the standard deviation of each stock in the portfolio III. Firm-specific risk can be dramatically reduced and virtually eliminated A. I only B. III only C. I and II only D. I and III only E. I, II and III