John also knows that the current interest rate of 6% may vary. He looked at the interest rates the past 15 years and discovered that in 6 out of 15 years the interest rate was 4%, in 3 out of 15 years 6% and in the remaining years the interest rate was 8%.

8. How would you call the variation in interest rate? What other sources of variation cause this kind of risk?

What would happen if variation in and variation in interest rate were positively correlated? And in the case when they were negatively correlated?