1.       Regarding the general effects of maturity on bond prices and returns， which of the following statements are most likely not wrong?
　　I.          Bond prices will tend to increase with maturity when coupon rates are above the relevant forward rates.
　　II.        Bond prices will tend to decrease with maturity when coupon rates are above the relevant forward rates.
　　III.      When short-term rates are above forward rates utilized by bond prices, then long-term investments will tend to underperform short-term investments.
　　IV.      When short-term rates are below forward rates utilized by bond prices, then long-term investments will tend to outperform short-term investments.
　　A.        I and III
　　B.        I and IV
　　C.        II and III
　　D.        II and IV
　　Answer: B.
　　In general, bond prices will tend to increase with maturity when coupon rates are above relevant forward rates. When short-term rates are below the forward rates utilized by bond prices, the investors who invest in longer-term investments will tend to outperform investors who roll over shorter-term investments.