1. True or False: Consider a three-year bond with a face value of $100 and an annual coupon of $11. If its yieldto-maturity is 12%, the bond is traded at a discount.

2. True or False: Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If the interest rates remain constant, one year from now the price of this bond will be the same.

3. True or False: Short-selling is equivalent to borrowing money from the bank.

4. True or False: A 1% change in yield will have more influence on a 10-year 10% $1,000 government bond than a 2-year 10% $1,000 government bond.

5. True or False: The slope of the security market line is beta.

6. True or False: A higher dividend payout will decrease the value of a call option and increase the value of a put option.

7. True or False: During the contraction period of a business cycle, defensive industries should be preferred under the notion of sector rotation.

8. True or False:The index fund manager tracking her portfolio with an equally weighted index cannot adopt a buy-and-hold strategy.

9. True or False: Everything else equal, an increase in the government budget deficit would, increase the government's demand for funds, shift the demand curve for funds to the right and Increase the interest rate in the economy.

10. True or False: To hedge against the risk of uncertain buying price, investors could construct a short hedge using futures contract.

11. True or False: A firm has an ROE of 3%, a debt/equity ratio of 0.5, a tax rate of 35%, and pays an interest rate of 6% on its debt. Its operating ROA equals to 5%.

12. True or False: Under the liquidity preference theory, if the yield curve is downward-sloping, the market might not expect a decrease in short-term interest rates.