Version A 6. An unexpected increase in market interest rates will cause: I. bond prices to increase. IL. bond prices to decrease. III, yields to maturity to increase. IV. yields to maturity to decrease A. I only B. I and III only C. I and IV only D. II and III only E. II and IV only 7. Which bond has the lowest degree of interest rate risk? A. Zero-coupon, 8 year B. 6 percent annual coupon, 8 year C. 8 percent annual coupon, 4 year D. 6 percent annual coupon, 4 year E. Zero-coupon, 4 year 8. The yields on Treasury bonds are usually less than yields on corporate bonds of similar maturity because Treasury bonds have lower inflation risk. A. True. B. False. 9. The term structure of interest rates is the relationship between real interest rates on default- free, pure discount securities and time to maturity. A. True B. False 10. The real rate is 10% and the expected rate of inflation is 4.5%, what is the nominal rate? A. 4.50% B. 14.95% C. 10.00% D. 8.69% E. 14.50%