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1. Which of the following correctly describes the effect of a decline in interest rates on bond prices?A. The prices of existing bonds rise.;B. The prices of existing bonds are not affected.;C. The prices of the existing bonds fall.;D. The prices of newly issued bonds are lowered.2. The major source of risk based by investors who purchase bonds isA. purchasing power risk.;B. liquidity risk.;C. event risk.D. interest rate risk.;3. A $1000 par value bond that was issued two years ago by the Golden Ibis Corporation has a 6% coupon. If the prevailing market rate for interest on comparable bonds is now 7% then the Golden Ibis bond pays it bondholders an annual interest income ofA. $70 and the bond would sell for less than its par value.;B. $60 and the bond would sell for more than its par value.;C. $70 and the bond would sell for more than its par value.D. $60 and the bond would sell for less than its par value.;4. A bond which has a deferred callA. would not have to be redeemed when it reaches maturity.;B. could be retired at any time prior to maturity.;C. could not be retired for a specified period after the date of issue but after that could be retired at any time.;D. could be retired at any time during the initial call period but after that period (usually the first five years after issue).

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