1) The liquidity risk of a long-term debt generally ________ the liquidity risk of a short-term debt.

A) is less than

B) is equal to

C) is greater than

D) is less than or equal to

2) Which of the following would typically signal an upcoming recession?

A) a declining risk spread

B) an increasing credit rating

C) a downward-sloping yield curve

D) an increasing term spread

3) A bond that sells below its par value and pays no coupon interest is called a ________.

A) preferred bond

B) discount bond

C) junk bond

D) prime bond

4) A year ago, Sam invested his savings into a corporate bond. Today, he sold his bond and calculated his rate of return from this investment. What real rate of return did he receive, if his nominal rate of return was 6% and the inflation rate during the year was 1.50%?

A) 104.43%

B) 6.00%

C) - 4.25%

D) 4.43%

5) Calculate the current price of the following corporate bond: the bond has 10 years to maturity, face value of $1,000 and pays interest semi-annually at an annual coupon rate of 4 percent. Assume similar in risk bonds currently carry a rate of return of 5 percent per year.

A) $768.35

B) $952.38

C) $922.05

D) $922.78