1. Which of the following statements is NOT correct?

		Call Provision gives the issuing corporations the right to call the bonds for redemption. It generally occurs when interest rate declines substantially.
		Call provision is valuable to the firm but potentially hurt investors.
		Bond is a long-term contract under which a borrower agrees to make payments of interest and principal to the holders of the bond on specific dates.
		Yield to maturity is the stated interest rate on a bond. It is multiplied by par value to get dollars of interest payments every year.

2. Whats TRUE regarding long-term and short-term bonds (assume they have the same par value and coupon rate)?

		Long-term bonds have higher interest rate risk; Short-term bonds have higher reinvestment risk.
		Long-term bonds have lower interest rate risk; Short-term bonds have higher reinvestment risk.
		Long-term bonds have higher interest rate risk; Short-term bonds have lower reinvestment risk.
		Long-term bonds have lower interest rate risk; Short-term bonds have lower reinvestment risk.

3. The prices of high-coupon bonds tend to be more sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

1. True
2. False

4. Which of the following statements about sinking fund is NOT true?

		Sinking fund provision facilitates the orderly retirement of the bond issue.
		A company would prefer to use sinking fund to call bond if interest rate is above the coupon rate.
		A company would use sinking fund to call bond if interest rate is well below coupon rate.
		It is a good strategy for a firm to use its sinking fund for open market purchase if bond sells at a big discount.

5. If investors become more averse to risk, the slope of the Security Market Line (SML) will decrease.

1. True
2. False