. You want to buy T-bills. Do you look at BID or ASK price?

A. BID

B. ASK

C. Either will do

D. the average of BID and ASK

2. A bond investor face which of the following risk?

A. default risk

B. interest rate risk

C. both default risk and interest rate risk

D. none of the above

3. A discount bond has a yield to maturity of 8%. Which of the following regarding this bond is correct?

A. price is higher than par value

B. coupon rate is lower than 8%

C. investor who purchases this bond will experience a capital loss

D. none of the above is correct

4. Which of the following measures: how long it takes to recover a projects initial costs?

A. net present value

B. internal rate of return

C. payback period

D. profitability index

5. Which of the following statements is correct:

A. convexity measures the effective maturity of a bond

B. duration measures the curvature of the price-yield relation

C. both convexity and duration help quantify interest rate risk

D. bond investors prefer bonds with low convexity