1. Which one of the following statements about vanilla bonds is NOT true?

Entry field with incorrect answer

The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value.

They have fixed coupon payments.

The face value, or par value, for most corporate bonds is $1,000.

Coupon payments are usually made quarterly.

2. Which of the following statements is true?

If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping.

The interest rate risk premium always adds a downward bias to the slope of the yield curve.

The longer the maturity of a security, the greater its interest rate risk.

The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession.