1. Which of the following statement is correct?

a. All the answers are incorrect.

b. Because of the favorable tax treatment corporations receive for the common stock dividend income, they bid up the price on common stock, thus lowering the expected rate of return.

c. In August of 2011 the bond rating agency Standard and Poor’s (S&P) increased long-term U.S. Treasury securities from AA+ to AAA.

d. A convertible bond is a bond that may be converted, at the option of the bond’s owner, into a certain amount of another security, such as common stocks, issued by the same company.

e. According to Moody’s ratings, an investment grade bond would have a rating of Ba1 or below.

2. When IRR less than required return, then: 

a. NPV less than required return

b. NPV less than 0

c. NPV greater than required return

d. NPV=0

e. NPV greater than 0