1.Which of following is true?

A. We can think of the treasury bond as almost a risk-free asset because its valuation never changes until it matures.

B. A treasury bond with coupon payments has lower duration than a zero-coupon treasury bond, assuming that they have the same maturity and face value.

C. The duration of a treasury bond can be higher than its maturity.

D. The modified duration of a treasury bond cannot be higher than its maturity even if interest rate is negative. E. Bond price moves in the same direction as interest rate

2.Consider a 5-year Treasury note with a coupon rate of 5%. For simplicity, assume that the coupons are paid annually. The zero rates from year 1 to year 5 are: 5%, 4.5%, 4%, 3.5%, 3%. Which of the following is NOT true?

A. The price of the bond is higher than its face value.

B. The yield-to-maturity of the bond is between 3% and 5%.

C. The duration of the bond is higher than 2.5 years.

D. The yield-to-maturity of the bond must be lower than 4%.

E. There is arbitrage opportunities in the economy because the yield curve is downward sloping.

3.Which of the following is true?

A. The bond holders are paid more than the equity holders when a company defaults.

B. Municipal bonds are also safe assets as the treasury bonds because they are also issued by the government.

C. Investors can perfectly hedge the credit risks in corporate bonds by purchasing credit default swaps.

D. Corporate bonds only have credit risk, but are not subject to interest rate risk.

E. A risky bond is more expensive if its credit spread increases.