1. True or False Questions.

a. A profitable company with good future prospects should have a going-concern value greater than its liquidation value.

b. A zero-coupon bond is a debt instrument that offers no return on investment.

c. The yield to maturity of a bond is the rate of return expected if it is bought at its current price and held to maturity.

d. A bond sells at a discount from its face value when its coupon rate exceeds the rate of return required by the market.

e. When the general level of interest rates rise, bond prices for previously issued bonds fall.

f. When interest rates change, bonds with the highest coupon rates will experience the greatest price changes, other things equal.

g. According to the basic DCF (Discount Cash Flow) stock valuation model, the value of a share of stock is not dependent on the length of time he or she plans to hold the stock.

h. Preferred stock is a hybrida sort of cross between a common stock and a bondin the sense that it pays dividends like a stock but its payments are usually contractually fixed but not guaranteed like interest on a bond.

i. From an investor's perspective, a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds. However, from a corporate issuer's standpoint, bonds are the most risky for the firm, common stock is next, and preferred is least risky.