4. Holding other things constant, a rise in interest rate normally ______ bond prices and ______ stock prices.

• A. increase / increase
• B. decrease / decrease
• C. increase / decrease
• D. decrease / increase

5. Sunk cost is a cost that is ___ with respect to the option chosen and thus should be ___ in the capital budgeting decision.

• A. variable / excluded
• B. fixed / included
• C. variable / included
• D. fixed / excluded

6. The payback period of a machine cost 50,000 generating cash inflows 20,000, 20,000, and 30,000 in year 1, 2, and 3, respectively is:

• A. 2 2/3 year
• B. 2 1/3 year
• C. 1 2/3 year
• D. 3 1/3 year
• E. 3 2/3 year

7. The following are the prices in the foreign exchange market between the U.S. dollar and another local currency (LC). ::::::::::::::::::: Spot $0.02465/LC....... 3-month forward $0.02473/LC...... What was the discount or premium on 3-month forward for LC?

• A. 1.298% premium
• B. .3245% premium
• C. 1.298% discount
• D. .013% discount
• E. .013% premium