Q2

a)

Currently the yield on 10y Greek goverment bonds is 1.01% and on French government bonds 0.24%. If the difference between these yields has increased, which of the following two events may have occurred?

		The default risk of the French government has decreased.
		Risk-free interest rates have decreased.
		The default risk of the Greek government has increased.
		Risk-free interest rates have increased.

b)

In a high inflationary environment which one of the following statements is not true?

		The real value of debt will increase.
		The real value of savings will decrease.
		The value of debt relative to wages and prices will decrease.
		The value of savings relative to wages and prices will decrease.

c)

In the event of a default, preference shares will incur losses before common shares but after bonds.

True

False