Bus 71 Midterm Exam – October 24, 2013 – 5:00-6:20pm (80 minutes)Total points = 100 plus 4 points of extra creditShort Answer Questions (one paragraph maximum – 3 points each)1.What is a bond covenant?Give two examples, one that increases the valueof a bond, one that decreases its value.2.What are the two kinds of risks that bonds have?3.What are the advantages and disadvantages of applying Net Present Value(NPV) vs. the payback rule?4.What is “fiduciary responsibility”, and what does that imply for whatcorporate managers must do for their shareholders?5.Why do firms incorporate, and what disadvantages (if any) does incorporationbring?6.You have $20,000 to invest for the next 20 years.Would you rather receive7% for the first 10 years followed by 11% for the second 10 years, or 11% forthe first 10 years, followed by 7% for the second 10?Why?(your answerCANNOT use calculations)Calculator Questions -- show work, calculations and formulas to getappropriate partial credit!Be sure to show significant digits as specifiedby each problem!A.5 points.Assume the total cost of a college education will be $280,000 whenyour child enters college in 30 years.You presently have $35,000 to invest.What annual rate of interest (in %, two digits after the decimal) must you earnon your investment to cover the cost of your child’s college education?B.5 points.You have just received notification that you have won the $1 millionfirst prize in the Centennial Lottery.However, the prize will be awarded on your100th