Part I: True or False

____T_____1. Term structure of interest rates describes the relationship between long and short-term
rates.

__________2. Interest rate risk is a risk that a decline in interest rates will lead to lower income and funds
are reinvested. F

__________3. Default risk premium is the probability that the issuer will not pay the promised interest or
principal at the stated time. T

__________4. Treasury bonds is subject for DRP. F

__________5. Treasury bonds are bonds issued by the corporation. F

__________6. Municipal bonds are bonds issued by the national government. F

__________7. A call provision in a bond contract that gives the holder the right to redeem. F

Part II: Bonus Question (3PTS)

FULL NAME OF OUR FINANCE 33 PROFESSOR

PART III: MULTIPLE CHOICE QUESTIONS

1. It is a situation wherin imports is greater than exports?

a. Foreign Trade Deficit c. budget deficit
b. Inflation d. federal reserve policy

2. Statement I: if the government spends more than it takes in as taxes, it runs a surplus.
Statement II: the increase in demand for funds will result to increase in interest rates

a. Only statement I is true

b. Only statement II is true
c. Both statement is true
d. Both statement is false

3. A yield curve where interest rates on intermediate term maturities are higher than rates on both
short and long-term maturities?
a. Humped yield curve c. normal yield curve
b. Inverted yield curve d. yield curve

4. A graph showing the relationship between bond yields and maturities?

 a. Humped yield curve c. normal yield curve
b. Inverted yield curve d. yield curve

5. An upward-sloping yield curve

a. Humped yield curve c. normal yield curve
b. Inverted yield curve d. yield curve

6. Bonds issued by foreign governments/corporation

a. Corporate bonds c. municipal bonds
b. Foreign bonds d. city bonds

7. It refers to the number of years to maturity at the time a bond is issue.

a. Maturity bond c. Original maturity
b. Call provision d. fixed-rate bond

8. A specified date on which the par value of a bond must be repaid

a. Maturity bond c. Original maturity
b. Call provision d. fixed-rate bond

9. A provision in a bond that gives the issuer the right to redeem

a. Maturity bond c. Original maturity
b. Call provision d. fixed-rate bond

10. A bond whose interest rate is fixed for its entire life.
a. Maturity bond c. Original maturity
c. Call provision d. fixed-rate bond

PART IV: SHORT ANSWERING

1. IF D1=$2.00, G= 6%, AND Po= $40.00, compute for the following;

a. Expected dividend yield? (2pts) 5%

2. Firm A is expected to pay a dividend of $1.00 at the end of the year. The required rate of return
is rs=11%. Other things held constant, what would the stocks price be if growth rate was 5%?
(2pts) $16.67
3. JJJ corporation have 20000 common shares outstanding with P90 par. Suppose, JJJ corporation
decided to declare a 1-for-3 reverse split.

a. What is the new number of shares and its par value (1pt)
b. If the share split is 3-for1, what is the new number of shares?(1pt)

4. Donny Ahas Kamatis sells Cobra Makaluya drink. This year Donny was successfully sold 50000 of
Cobra Makaluya drink with a selling price of $50.00 and its related variable cost is $20.00. Donnys
fixed cost is said to be $70000.
a. Compute for breakeven point (2pts)
b. Suppose, donnys target profit is $20000, what should be the required sales volume to achieve
such profit? (2pts)