1. All else equal a rational investor would prefer:

a. A stock with a mean of 15% and a standard deviation of 20%.

b. A bond with a mean of 5% and a standard deviation of 10%.

c. A stock with a mean of 15% and a standard deviation of 15%.

d. A bond with a mean of 8% and a standard deviation of 10%.

2. Which statement is TRUE?

a. Cash is one of the 5 Cs of credit.

b. Lockboxes are often used when firms have customers over a large geographic area

c. Paying accounts payable early to take advantage of discounts results in a shorter cash conversion cycle.

d. Under a line of credit, the bank is legally committed to lend the funds