Answer True, false or it depends? Briefly explain (or qualify) your answers in a few lines.

(a) Investors expect higher returns on long-term bonds than short-term bonds because they are riskier. Thus the term structure of interest rates is always upward sloping. (2 marks)

(b) Bonds whose coupon rates fall when the general level of interest rates rise are called reverse floaters. Everything else the same, these bonds have a lower modified duration than their straight bond counterparts. (2 marks)

(c) Term structure of interest rates must be always upward sloping because longer maturity bonds are riskier. (2 marks)

(d) Bonds with higher coupon rates have more interest rate risk. (2 marks) (e) The term structure of interest rates is always upward sloping because bonds with longer maturities are riskier and earn higher returns. (2 marks)