A. If the interest rates rise as the length of the borrowing period increases, how would the yield curve be described?

• a.)
• Flat
• b.)
• Steep
• c.)
• Normal
• d.)
• Inverted

B. Which of the following impacts a bond's interest rate, or coupon rate?

• a.)
• The bond's face value
• b.)
• The bond's credit rating
• c.)
• The bond's par value
• d.)
• The bond's market value

C. Which of the following is an advantage of bonds for a potential investor?

• a.)
• Although riskier than stocks, they have the potential for greater returns.
• b.)
• They do not carry interest rate risk.
• c.)
• They can never be recalled by a company.
• d.)
• Their pricing is more stable and less wide-ranging than that of stocks.

D. Charlie wants a bond that will pay him regular interest payments, but also provides him with the ability to exchange the bond for stock.

What kind of bond should he buy?

• a.)
• Floating-rate
• b.)
• Asset-backed
• c.)
• Convertible
• d.)
• Subordinated

E. Select the true statement about interest rate risk.

• a.)
• Bonds held until maturity have greater exposure to interest rate risk.
• b.)
• It is the risk that bond prices will fall if market interest rates rise.
• c.)
• It stems from the fact that coupon rates and market interest rates are directly correlated.
• d.)
• Longer-term bonds are less sensitive to interest rate risk than shorter-term bonds.