If perceived interest rate volatility increases but the level of yields remains unchanged, which of the following bonds will experience the largest price increase?

1. A callable bond

2. A putable bond

3. A zero coupon option free bond

4. An option free coupon bearing bond

Which of the following best describes an affirmative bond covenant? The issuer:

1. Is required to maintain a current ratio above a certain level

2. Is prohibited from investing in risky projects

3. Is required to pay taxes as they come due

4. Is prohibited from paying dividends in excess of cumulative earnings over a certain period

Investors who believe that short term interest rates are likely to rise more quickly and eventually reach higher levels than the current term structure of interest rates implies would most likely prefer to invest in:

1. Inverse floaters

2. Long maturity treasury STRIPS

3. Ordinary floating rate notes

4. Fixed coupon bonds with long maturities