1. If a stock’s required rate of return is 10% and the expected rate of return is 9%, the stock is believed to be ______

Undervalued.
Overvalued.
Fairly-valued

2. A 10-year $1,000 face value corporate bond has an annual coupon payment of 5% of the face value. The bond is currently selling at par ($900). Which of the following statement is NOT correct?

1. The bond’s yield to maturity is 0%.
2. The bond’s current yield is 5%.
3. The bond’s capital gain yield is positive.
4. The bond’s capital gain yield is negative.

3. Which of the following statements is correct?

1. Preferred dividends paid are tax deductible.
2. Interest expense is tax deductible.
3. Common dividends paid are tax deductible.
4. Special dividend payments are tax deductible.
   
   4. Which of the following statements is not true?
   
   Common stock represents ownership, and ownership implies control.
5. Stockholders elect directors, and directors hire management.
6. Since managers are “agents” of shareholders, their goal should be maximizing stock price.
7. There will be no agency problem if the founder is still the Chairman and CEO of the company.