1. If the liquidity, asset management, debt management, and profitability ratios all look bad and if investors think these ratios will continue to look bad in the future, the market value ratios will be high, the stock price will be as low as can be expected, and management will be judged to have been doing a bad job. *

True

False

2. The profitability ratios reflect the net result of all of the financing policies and operating decisions. *

True

False

3. It might be possible to improve the ROE by using more debt, which in turn will lead to an increase in the P/E ratio and thus in the firms stock price *

True

False

4. The current real rate is the current interest rate minus the current (or latest past) inflation rate, while the real rate (without the word current) is the current interest rate minus the expected future inflation rate over the life of the security. *

True

False

5. Interest rate risk is the risk that a decline in interest rates will lead to lower income when bonds mature and funds are reinvested. *

True

False