1) Which of the following will decrease the price sensitivity of a bond to changes in interest rates?

I. decrease in coupon rate II. increase in coupon rate III. increase in investors buying the bond IV. decrease in investors buying the bond

a) I and III only

b) II only

c) II and III only

d) I and IV only

e) II and IV only

2) Which of the following statements do/does not state a relationship correctly? I. Time and future values are positively related, all else held constant. II. Interest rates and time are positively related, all else held constant. III. An increase in the discount rate increases the present value, given positive rates. IV. Time has an effect on the future value even the interest rate is zero. V. Time and present value are directly related, all else held constant.

a) II, III and IV only

b) IV and V only

c) II and III only

d) III and IV only

e) II, III, IV and V only

3) Which of the following statements concerning interest rates is/are correct? I. Savers would prefer monthly compounding over daily compounding. II. The effective annual rate can be equal to the annual percentage rate. III. Borrowers would prefer monthly compounding over annual compounding. IV. The effective annual rate decreases as the number of compounding periods per year increases. V. For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.

a) II, III and V only

b) I, III and IV only

c) I and II only

d) II only

e) I only

4) Which of the following statements is/are correct? I. Preferred stocks have zero growth in price. II. The capital gains yield is the annual rate of change in a stock's price. III. A constant dividend stock cannot be valued using the dividend growth model. IV. We can apply the dividend growth model only to compute the current value of any stock.

a) I and II only

b) I, II and III only

c) II, III and IV only

d) II only

e) II and III only

5) Your dad wants to have $5 million in his savings account when he retires. He is going to invest a single lump sum today to fund this goal. He plans on depositing the amount in a savings account which will pay him 4 percent annual interest. Which of the following will increase the amount that he must deposit today to reach his retirement saving goal?

I. Retires later.

II. Retires sooner.

III. Invests in a different account paying 3 percent interest.

IV. Invests in a different account paying 5 percent interest.

a) I and III only

b) II and III only

c) I only

d) II only

e) IV only