Section A This section is compulsory. Please ANSWER ALL questions from this section.

Please write a brief reason for each answer

QUESTION 1.

True / False. Duration can be thought of as the weighted average time of a bond's cash flow.

QUESTION 2.

True / False. The duration of a zero coupon bond is the same as its maturity.

QUESTION 3.

True / False. The longer a bond's duration the greater its volatility.

QUESTION 4.

Multiple Choice.

Which of the following statements about the relationship between interest rates and bond prices is true?

A. There is an inverse relationship between bond prices and interest rates. B. There is a direct relationship between bond prices and interest rates. C. The price of short-term bonds fluctuates more than the price of long-term bonds for a given change in interest rates. (Assuming that coupon rate is the same for both) D. The price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates. (Assuming that the coupon rate is the same for both)

QUESTION 5.

Multiple Choice. A firm's investment decision is also called the:

A. Financing decision B. Liquidity decision C. Capital budgeting decision D. None of the above

QUESTION 6.

Multiple Choice.

Conflicts of interest between shareholders and managers of a firm result in:

A. Principal-agent problem B. Increased agency costs C. Both A and B D. Managers owning the firm

QUESTION 7.

Multiple Choice. In the principal-agent framework:

A. Shareholders are the principals B. Managers are the principals C. Managers are the agents D. A and D

QUESTION 8.

Multiple Choice.

The present value of $100 expected in two years from today at a discount rate of 6% is:

A. $116.64 B. $108.00 C. $100.00 D. $89.00

QUESTION 9.

Multiple Choice. The purchase of real assets is also referred to as the:

A. Capital decision B. CFO decision C. Financing decision D. Investment decision

QUESTION 10.

Multiple Choice.

The one-year discount factor at an interest rate of 100% per year is:

A. 1.5 B. 0.5 C. 0.25 D. None of the above