1. If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a downward sloping yield curve, which of the following is a true statement??

a. ?Investors expect interest rates to increase in the future.

b. ?Investors require a positive maturity risk premium.

c. ?Investors expect interest rates to decrease in the future.

d. ?Investors expect interest rates to be constant over time.

e. ?The maturity risk premium must be positive.

2. A sinking fund call:?

a. ?does not require the company to pay a call premium.

b. ?requires the company to redeem bonds at market price.

c. ?requires the company to claim back all the interest payments from the bondholders.

d. ?requires the company to pay a penalty to investors.

e. ?does not require the company to pay a small percentage of the issue every year.

3. A debt is said to be selling at par, when the _____ of the debt is equal to the _____.?

a. ?market value; face value of the debt

b. par value; discounted value of the interest payments

c. ?face value; premium payment on the exercise of a call provision

d. ?maturity value; par value of the debt

e. ?principal value; discount on the issue of a zero coupon bond