1.Bond prices are more sensitive to changes in interest rates during a high interest rate regimes (e.g. 1980s) than in a low interest rate regimes (e.g. 2010s).

True or false?

2.During a recession, credit spreads increase. A recession is best defined as 2 consecutive quarters where GDP growth is less than the rate of inflation.

True or false?

3.Today (T=0), an investor purchased a five year bond with an 7.0% coupon at par (aka face value). Assume interest rates do not change from now until the bonds maturity. If the investor holds the bond from now until maturity and can reinvest coupons at the YTM, the investors annualized rate of return over the five year investment horizon will be closest to:

HINT: No math is required

a) 3.5% b) 7.0% c) 8.0% d) 14.0% e) Impossible to answer without more information