3. Answer True or False to the following questions and with Explanation. (No credits will be given if no explanation is shown)
4. a) The mutual funds are good for investments since they are all efficient portfolios.
5. b) The reason for time value of money is that money can earn interests.
6. c) The bonds yield to maturity is the required rate of return for creditors of the firm regardless of the investors holding horizons. Therefore, if Federal Reserve increases the money supply by reducing the required reserve in all banks, the bond yield will also increase.
7. d) The discount rate for future expected cash flows is defined as the cost of capital. Hence, it must cover all financing risk where the institution may arrange to finance the necessary capital for the investment projects.