6. Why is it best to hold zero coupon bonds in a tax-deferred account like a 401K? A. Zero coupon bonds are tax exempt B. The IRS requires the holders of zero coupon bonds to pay taxes on the interest that accrues, even though they aren't receiving coupon payments C. The IRS allows investors to defer paying taxes on all zero coupon bonds D. The SEC mandates are zero coupon bonds be held in tax deferred accounts E. Both C and D 7. Why do corporate bonds pay a higher risk premium than municipal bonds? A. Neither corporations nor state and local governments can levy taxes B. State and local governments can print money, whereas corporations cannot C. Corporations can levy higher taxes than state and local governments D. State and local governments can levy taxes, whereas corporations cannot E. None of the above 8. According to the Dividend Discount Model, if the growth rate of a company's dividends increases, holding all else equal, then the value of the company's stock will A. Increase B. Decrease C. Stay the same D. Insufficient information E. None of the above 9. If a firm increases its plowback ratio, this will probably result in P/E ratio A. A higher B. A lower C. An unchanged D. Insufficient information (need to know ROE to better determine increase, decrease, or no change in P/E ratio) E. None of the above