1. Lower-grade bonds offer higher returns than high-grade bonds because of:

a. their attractive returns to risk-averse investors.?

b. ?their tax-free returns and no capital gain tax liability.

c. ?their increase in coupon interest rate over the life of the bonds.

d. their higher risk and more restricted market.?

e. their maturity value being higher than the market value.?

2. The principal value is also referred to as the maturity value because:?

a. ?it is repaid at the maturity date.

b. ?it is issued at a value below par value to generate a positive capital gain.

c. ?it is written on the face of the debt contract.

d. ?it is added to interest payments to be repaid at the maturity date.

e. it is always repaid at maturity in one installment.?

3. A call provision for the redemption of bonds:?

a. ?allows the firm to call the bonds for redemption after one year of maturity.

b. ?allows the firm to refinance debt.

c. ?requires the redemption of the bonds at their market price.

d. ?requires an advance payment of future interest to the bondholders.

e. ?requires bondholders to convert their bonds into lower coupon rate bonds.

4. Which of the following statements is true about federal funds??

a. ?Federal funds are used by banks to meet the reserve requirements of the Federal Reserve.

b. ?Federal funds offer loans to the state government to meet the reserve requirements of the federal government.

c. ?Federal funds are used to repay the T-bills issued by the federal government.

d. ?Federal funds have very long maturities, often 3 years or more.

e. ?Federal funds offer loans at a coupon rate that is two times the market interest rate.