1.

Risk aversion is the behavior exhibited by managers who require ________.

A.

an increase in return, for a given increase in risk

B.

decrease in return, for a given increase in risk

C.

an increase in return, for a given decrease in risk

D.

no changes in return, for a given increase in risk

2.

________ is the process of evaluating and selecting long?term investments that are consistent with a firm's goal of maximizing owners' wealth.

A.

Capital budgeting

B.

Recapitalizing assets

C.

Ratio analysis

D.

Securitization

3.

The possibility that the issuer of a bond will not pay the contractual interest or principal payments as scheduled is called default risk.

True

False

4.

The claims of the equity holders on a firm's assets have priority over the claims of creditors because the equity holders are the owners of the firm.

True

False

5.

A yield curve that reflects relatively similar borrowing costs for both short-term and long?term loans is called a normal yield curve.

True

False