1. Select the true statement about reinvestment risk.

• a.)
• Reinvestment risk is directly correlated to interest rate risk.
• b.)
• Only holders of callable bonds are subject to reinvestment risk.
• c.)
• Reinvestment risk increases when market interest rates fall.
• d.)
• A zero-coupon bond carries the greatest reinvestment risk.

2 Franklin purchased a $10,000 20-year Treasury bond that promised to pay him 1.25% interest every six months for the life of the loan.

Which of those numbers is the par value of the bond?

• a.)
• 20
• b.)
• Six
• c.)
• 10,000
• d.)
• 1.25

3 Who is responsible for holding the legal contract for a bond, orbond indenture?

• a.)
• Government officials
• b.)
• The bondholder
• c.)
• A trustee, like a financial institution
• d.)
• The borrower