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 can increase or decrease or remain the same

b) The price of a callable bond will decrease

c) The price of a callable bond will remain the same

d) The price of a callable bond will increase

e) Cannot be determined from the information given

2. Consider a coupon bond maturing in two years with a par value of $100. The yield to maturity is currently higher than the coupon rate. If interest rates remain constant, one year from now the price of this bond will be:

a) higher than it currently is

b) lower than it currently is

c) the same as it currently is

d) $100

e) cannot be determined