1. As a result of improved economic data, analysts predict that the interest rates are not going to change immediately but that their future volatility will decrease. The day after the analysts prediction, you observe the term structure to maturity remains unchanged. Assume that the analysts are right in their prediction.

What is the expected change in the price of a corporate callable bond if no other changes occur in the market?

a. The price of a callable bond will remain the same

b. Cannot be determined from the information given

c. The price of a callable bond will increase

d. The price of a callable bond can increase or decrease or remain the same

e. The price of a callable bond will decrease

2. Between coupon payment dates, as short-term interest rates fall, the value of a floating-rate note (FRN):

a. Increases

b. Doesnt change

c. May increase or decrease depending on the maturity date

d. Decreases

e. None of the other answers is correct