1. Which of the following statements about relevant and irrelevant risks is true??

a. ?Relevant risk includes interest rate risk, but excludes default risk.

b. ?Relevant risk includes inflation risk, but excludes political risk.

c. ?Relevant risk includes exchange rate risk, but excludes inflation risk.

d. ?Relevant risk includes default risk, but excludes political risk.

e. ?Relevant risk includes liquidity risk, but excludes exchange rate risk.

2. If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a 1-year T-bond??

a. ?It is impossible to tell without knowing the coupon rates of the bonds.

b. ?It is impossible to tell without knowing the relative risks of the two bonds.

c. ?The yields on the two bonds are equal.

d. ?The yield on the 10-year bond is less than the yield on a 1-year bond.

e. ?The yield on a 10-year bond will always be higher than the yield on a 1-year bond because of maturity premiums.