3 Which statement below is true assuming: $100 today is worth $105 in one year (5% interest): a) The $100 PV increases if the $105 FV is received TWO years from today b) The $100 PV decreases if the $105 FV is received SIX MONTHS from today c) The $100 PV increases if the interest rate changes to 10% d) The $100 PV decreases if the interest rate changes to 10% 4 A "normal" shaped yield curve a) Exists when short-term rates exceed long-term rates. b) Exists when long-term rates exceed short-term rates, c) Signifies that investors can get higher returns by investing in bonds than by investing in stocks. d) Signifies that investors can get higher returns on stocks than on bonds. 5. Which of the following are true? a) Debt has a maturity and equity is a perpetuity b) Interest payments have to be paid and common stock dividends do not c) Payments are made to creditors before any are made to owners d) All of the above are true 6. When payments are made/received in periods less than one year (e.g., monthly), the present value and future value formulas: a) are not adjusted b) are adjusted by increasing the number of periods ("n") to reflect more payments c) are adjusted by decreasing the rate ("") d) are adjusted by increasing the number of periods ("n") and decreasing the rate ("r") per period 7. A Disney Corporation Bond with a $1,000 par value can be purchased at a discount today for $908. The original coupon was 11%, so the bond pays $110 interest once every year. There are eight years before maturity and Disney will pay $110 each of those eight years and it will pay back the $1,000 par at the end of the eighth year. Why might the bond be selling for less than par (at a "Discount") given that Disney will still pay $110 interest each year and $1,000 principal at the end of eight years? a) b) Disney's stock value has declined because of a business cycle downturn Interest rates have increased since the bond was issued Interest rates have decreased since the bond was issued The bond can be converted into common stock d)