1. The internal rate of return method of computing return is based on which of the following assumptions?

A. Receipts from the investment are reinvested in each time period at the current market price. B. Receipts are reinvested in each time period at the internal rate of return.

C. Receipts are not reinvested.

D. A constant amount is reinvested in all periods.

E. Receipts are reinvested at the risk-free rate of interest

2. A call feature:

A. allows bondholders to convert their bond to a specified number of shares of common stock. B. is not available on corporate bonds.

C. allows the corporation to buy outstanding bonds from current bondholders before the maturity date at a predetermined price.

D. is only available with government securities.

E. is guaranteed by the corporation.

3. What is the current yield for a $1,000 5 year corporate bond that pays 6.5 percent and has a current market value of $950?

A. 6.5% B. 6.8% C. 7.4% D. 7.1% E. 8.2%

4. If its yield to maturity is higher than its coupon rate, a bond will sell at a _____, and decreases in market interest rates will _____.

A. discount; decrease this discount

B. discount; increase this discount

C. premium; decrease this premium

D. premium; increase this premium

E. None of the above

5. Which of the following securities has the lowest duration (at 10% interest)?

a. A consol (i.e., a perpetuity).

b. A 10-year pure discount bond.

c. A 10-year annuity.

d. A 10-year conventional, noncallable bond with a coupon rate of 10%.

e. A perpetual annuity with payments expected to grow at a constant rate of 2%