1) When an economy enters recession and demand for risky securities decreases, the ability to sell such securities quickly at a good price _____________ leading to a(n) ___________ liquidity premium.

A. increases; decreased

B. increases; increased

C. decreases; decreased

D. decreases; increased

2) When interest rates rise, the price (value) of existing bonds goes down.

True

False

3)

Long-term bondholders face ______________ interest rate risk than short-term bondholders. However, short-term bondholders face ____________________ which is the risk that interest rates are lower when the short-term bond matures.

	A.	more; reinvestment rate risk
	B.	less; default risk
	C.	less; reinvestment rate risk
	D.	more; default risk