Q1.

What is TRUE regarding long-term and short-term bonds (assume they have the same par value and coupon rate)?

A. Long-term bonds have lower interest rate risk.

B. Short-term bonds have higher reinvestment risk.

C. Long-term bonds have higher reinvestment risk.

D. Short-term bonds have higher interest rate risk.

Q2.

There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns decrease as the bond ratings get higher.

True or False