4. If you expect interest rates to go to 5% next year, Which statement best describes the relationship of the market rate and the price of the bond?

A. Market rates went down, so the price of the bond went up.

B. Market rates went down, so the price of the bond went down too.

C. Coupon rates went down, so the price of the bond went up.

D. Coupon rates went down, so the price of the bond went down too.

5. If you expect interest rates to go to 5% next year, Which statement best describes how the value of the cash flows of the bond are impacted?

A. Only the coupon interest payment is impacted as we still receive $1000 principal

at the end of the bonds life.

B. Both the market rate payment and the principal are impacted.

C. Both the coupon payment and principal are impacted.

D. All three cash flows (market payment, coupon payment and principal) are impacted.

6. Which of the statements about volatility of bonds is not true?

A. Long-term bonds are more volatile than short-term bonds.

B. The risk of bond volatility depends on which way interest rates are moving. If rates are falling, it is better to own long-term bonds, because higher volatility means higher bond prices.

C. If rates are increasing, you want to own lower volatility, short-term bonds to minimize the price decline in your bond holdings.

D. Bond volatility is not impacted by lower credit ratings