1. Which of the following is a correct interpretation of r = i ?
   1. Nominal interest rate is real interest rate adjusted for inflation.
   2. Real interest rate is inflation adjusted for nominal interest rate.
   3. Inflation is real interest rate adjusted for nominal interest rate.
   4. Negative real interest rate is possible.
   5. Negative real interest rate is favorable to the lenders.
3. Which of the following is not a correct statement?

1. Accounts receivable represents credit sale, and thus, cannot be collected until maturity.
2. Accounts receivable mainly consists of promissory notes and credit sales.
3. Accounts receivable is part of the current assets.
4. Accounts payable mainly consists of purchase of inventory on credit and notes payable.
5. Accounts payable is part of the current liabilities.

17. Which of the following is not a correct statement?

1. When promissory notes are factored, the full face value is not redeemed.
2. Accounts receivable are discounted in the same way as promissory notes.
3. When accounts receivable are factored, invoices are irrelevant.
4. Promissory notes are a type of commercial paper.
5. Commercial paper is a short-term corporate debt.

1. Which of the following is not a correct statement?
   1. ST US govt debt instrument is called Treasury bill.
   2. LT US govt debt instrument includes Treasury note with maturity up to 10 years and Treasury bond with maturity up to 30 years.
   3. ST refers to maturity up to 3 years.
   4. LT corporate debt instrument is called corporate bond.
   5. Bond is the term for LT debt instruments in general.
2. Which of the following is not a correct statement about the bond?
   1. Bond can be either non-interest-bearing or interest-bearing.
   2. Non-interest-bearing bonds sell at discount upon issuance.
   3. Price of a discount bond will go up as it approaches maturity.
   4. There is an inverse relation between the bond price and interest rate.
   5. Baseline interest rate for the bond market is LIBOR rate.
3. US governments credit rating is high mainly because
   1. US has had the highest GDP in the world for more than the past half century.
   2. Source of US govt income is the tax revenue, which is proportionate to the GDP.
   3. It can sell new issues of bonds to partially retire maturing debts.
   4. It can print dollars that are also accepted all over the world.
   5. All of the above
4. Which of the following is a correct statement?
   1. Inventory is not part of the current assets because they are physical in nature.
   2. Plant, equipment, building and land are non-current assets, but not fixed assets.
   3. Marketable securities such as stocks & bonds are current assets.
   4. Cash is the only liquid asset.
   5. Physical assets are finance by equity only.
5. Which of the following is an incorrect statement?
   1. Revenue Operating Income = Gross Margin
   2. Revenue = Price Qty sold or TR = P*Q
   3. EAT = EBT Taxes
   4. Income Expenses = Operating Income
   5. Revenue CGS = Gross Profit
6. Expenses can be categorized by whether the cost incurred is directly related to production or not. Which of the following is correct?
   1. If directly related, it will not change with the production level, thus called Fixed Cost.
   2. If directly related, it will change with the production level, thus called Fixed Cost.
   3. If not directly related, it will not change with the production level, thus called Variable Cost.
   4. If not directly related, it will change with the production level, thus called Variable Cost.
   5. None of the above is a correct statement.

24. Which of the following is an incorrect statement?

1. Income Expenses = Operating Income
2. Current Assets Current Liabilities = Net Working Capital
3. Net Profit = EBT Taxes
4. Operating Income Interest PMT = Gross Profit
5. Expenses = CGS + Operating Expenses

25. Which item of the income statement represents the taxable income of the firm? a. EBIT b. Operating Income c. EBT d. CGS e. EAT