1. 2. 3 4. 5. 6. 7. Part 1: True/False and 3 short calculations. 39 points. The highest credit rating assigned by Standard's and Poor is A Municipal bonds are issued by state and local governments Callable bonds are issued with higher coupon than noncallable bonds. There is an inverse relationship between interest rates and bond prices. 5. Zero coupon bonds pay no interest. 6. A convertible bond is convertible into additional bonds of the company. The risk free rate is equal to the total return of the stock market. 8. An investor would consider investing in a stock that trades below its intrinsic value. 9. The coupon rate of the bond determines the interest payment. A bond trading at a discount to par value would have a yield to maturity higher than its current yield. If you believe in strong form of the efficient market hypotheses, you believe that stock prices reflect all available information including information that is available only to insiders. Interest income on municipal bonds is exempt from federal income taxes Treasury bills usually outperform stocks most years. 9. 10. 11. 12. 13