1. Suppose one rating agency recently published new rating on a corporate bond. How would the bond price change if the rating was downgraded? Why?

2. Two bonds, bond A and bond B, have the same maturity, risk ratings and face value but have different coupon rates.

Supper bond A has higher coupon rate than bond B. Which bond will be more sensitive to the movement in the interest rate?

3. Briefly explain the three forms of market efficiency. For each type, give one example and explain whether market is efficient in your example.

4. What is the definition for IRR? What is the assumption in calculating IRR? List one disadvantage of IRR.