t2v1spring09

t2v1spring09 - SECTION I: TRUE/FALSE. (3 points each) 1. If...

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SECTION I: TRUE/FALSE. (3 points each) 1. If S&P changes the rating on Coca-Cola bonds from AA to A. The price of Coca-Cola bonds should then increase. A. TRUE B. FALSE 2. Historically, the yield curve is upward sloping. A. TRUE B. FALSE 3. The current yield can never be greater than the yield to maturity. A. TRUE B. FALSE 4. Bonds with longer maturities have greater interest rate risk than bonds with shorter maturities. A. TRUE B. FALSE 5. An investor in government bonds would likely face more liquidity risk than an investor in corporate bonds. A. TRUE B. FALSE 6. When projects are contingent, the NPV rule and IRR rule may disagree. A. TRUE B. FALSE 7. The largest weakness of the infinite stock pricing model is that finding the required return is very difficult. A. TRUE B. FALSE Section II: PROBLEMS (5 points each except where noted) 8. (4) The yield curve graphs the yield to maturities of bonds with the same _______________. a. Interest rate risk b . Default risk c. Liquidity risk d . Call risk 9. (4) Which of the following statements is FALSE regarding stock pricing models? a. The greater the return required by the investor, the lower the intrinsic value of the stock. b . If the intrinsic value of the stock is less than the current trading price, the investor should avoid buying the stock. c. The weakness in the finite model is that we assume a selling price at some point in the future. d . The key weakness of the infinite model is that we assume that the corporation has unlimited life. e.
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t2v1spring09 - SECTION I: TRUE/FALSE. (3 points each) 1. If...

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