1. Which of the following statement is correct? a. When the degree of risk associated with future cash flows goes down, the stock price also goes down. b. In a limited partnership, the general partners usually participate actively in the management of the business, whereas limited partners usually do not. c. When firms spend time and money to monitor and reduce agency problems, we call these outlays of time and money as principal benefits. d. All the answers are incorrect. e. A business owned by one person is called a corporation.

2. Which of the following statements is CORRECT? a. Real-risk-free rate of interest would exist on default-free U.S. Treasury securities if no inflation were expected. b. Inflation premium equal to expected inflation that investors subtract from the real risk-free rate of return c. The reinvestment rate risk is the risk that a decline in interest rates risk will lead to higher income when bonds mature and funds are reinvested. d. Term structure of interest rates is the relationship between bond and stock yields.