1. Which of the following statements is false?

A) bond prices will fall when lenders expect lower rates inflation in the future.

B) corporations, unlike proprietorships and partnerships, are subject to double taxation.

C) the stock and bond markets are very efficient.

D) when a prescient individual (assuming they actually exist) expects the economy to expand, he should hold no nominal assets.

2. Which of the following statements is true?

A) Low cap stocks provide the lowest potential rate of return.

B) Blue chip stocks provide a greater growth potential than growth stocks.

C) A risk averse investor would prefer low cap stocks to large cap stocks.

D) A growth stock would pay low (or no) dividends.

3. What is the ratio of a corporations after-tax income to number of shares outstanding called?

A) The P/E ratio

B) EPS

C) price to book ratio

D) dividend yield

4. Which of the following statements is true?

A) A well diversified investment portfolio should never include junk bonds.

B) Preferred stock is more risky than common stock.

C) Preferred stocks pay a lower potential reward than common stocks.

D) By examining the price-earnings ratio of a variety stocks, it is fairly easy to find one that is undervalued.

5. You purchase at auction a $1,000 zero coupon bond that matures in five years for $784. If you hold the bond until maturity, what will be the average annual rate of return on the bond? (Use the time value of money in your calculations.)

A) 5%

B) 6%

C) 7%

D) None of the above