1. The equivalent annual cost rules is better than other capital budgeting rules in choosing among mutually exclusive projects with unequal lives.

True

False

2. If a stock requires an annual return of 10% and pays an annual dividend of $2 per share forever, then the current share price is $10.

True

False

3. Assume you hold 10-year annual coupon bonds and it is highly likely the market interest rates will increase next day. From this information it is recommended ______________________.

a. to switch immediately your 10-year bonds for bonds with shorter maturity

b. to sell immediately all your bonds

c. to switch immediately your 10-year bonds for zero coupon bonds with longer maturity

d. to switch immediately your 10-year bonds for bonds with longer maturity