1.) Which of the following is NOT correct?

Select one:

a. Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.

b. A likely explanation for an inverted yield curve is that investors expect inflation to decrease.

c. If the yield curve is upward sloping, the maturity risk premium must be positive and the inflation rate must be zero.

d. Holding other things constant, if expected inflation increases, interest rates are likely to increase.

e. If inflation is expected to increase in the future, and if the maturity risk premium (MRP) is greater than zero, then the Treasury yield curve will have an upward slope.

2.)Which of the following is NOT correct?

Select one:

a. If a bond's yield to maturity exceeds its coupon rate, the bond's price must be less than par value.

b. If a coupon bond is selling at par, its current yield equals its yield to maturity, and its expected capital gains yield is zero.

c. All else equal, if a bond's yield to maturity decreases, its price will fall.

d. The total rate of return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the end of the year, divided by the bond's price at the beginning of the year.

e. All else equal, long-term bonds have more interest rate risk (also known as price risk) than short-term bonds.