8. The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the:

A. The expectations hypothesis.

B. Segmentation theory.

C. The liquidity premium theory.

D. Market credit crunch theory.

9. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of return for Plan A over Plan B?

A. $28,800

B. $4,000

C. $4,800

D. $35,200

10. The term structure of interest rates is influenced by:

A. Inflation.

B. Money supply.

C. Federal Reserve activities.

D. All of the above.

11. A conversely financed firm would:

A) Use long-term financing for all fixed assets and short-term financing for all other assets.

B) Finance a portion of permanent assets and short-term assets with short-term debt.

C) Use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets.

D) Use long-term financing for permanent assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all other short-term assets.

12. The theory of the term structure of interest rates which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is the:

A. Expectations hypothesis.

B. Segmentation theory.

C. Liquidity premium theory.

D. Market average rate theory.

13. The term structure of interest rates:

A.Is often referred to as the yield curve.

B. Depicts the relative level of short and long-term interest rates.

C. Is usually constructed with U.S. government securities of varying maturities.

D. All of the above.