County Farm Insurance Co. manages a portfolio of corporate bonds for the purpose of producing cash flows sufficient to meet liabilities originating from its sale of life insurance policies. Credit rating and the size and timing of coupon and principal payment have been the criteria used to select bonds for the portfolio. An unexpected decrease in the level of market yields may:
I). increase the market value of bonds in the portfolio
II). reduce income realized from reinvestment of coupons
III). cause callable bonds to be called by issuers