1. Firm AAA's net income increased sharply from last year. Its net cash carned from operations declined this year because its depreciation expense declined. True / false 2. Liquidity premium represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected. True false 3. Default risk premium provides compensation to bond holders when a bond is not readily marketable at ts full value True false 4. Flat is the typical shape of yield curve True / . Assume that interest rates on 20-year Treasury and corporate bonds are as follows T-bond 7.72% AAA-8.72% 10. 18% The differences in these rates were probably caused primarily by default and liquidity risk differences. A 9.64% BBB- True/false 6. The real risk-free rate of interest, r*-3%, inflation is expected to steadily increase, and the maturity risk premium 0.1(t- 1)%, where t is the number of years until the bond matures. Given this information, we can conclude that the yield on 5-year corporate bonds must exceed the yield on 8-year Treasury bonds. True/false Assume that the rate on a one year bond is 6% now, and investors expect one year rates to be 7% one year from now, and then it will rise to 8% two years from now. Based on expectation theory, the interest rate today on a 2-year bond should be around 7%. True/false 8, if one year rates are 6% and 2-year rates are 7% now, then we can conclude that the one year rates will be around 6.5% in one year True/false