If real interest rates are 1% and nominal interest rates are 4%, annual inflation expectations are about 3% True False

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation True False

A bond will sell at a premium if its required return or discount rate is greater than its coupon rate. True False

Which of the following statements is most correct?

More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.

More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.

More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.