We can observe only one interest rate per day. O True False The equilibrium interest rate is determined using the Supply and Demand curves for Loanable funds. However, the equilibrium interest rate is only a temporary equilibrium. True False Increased near-term spending needs of households shift the DEMAND curve of funds. O True False
Default risk is the risk that a security issuer will miss an interest or principal payment or continue to miss such payment. O True False The value of a bond equals the present value of the cash flow received from the bond. The present value includes two components: (i) the present value of the principal payment and (ii) the present value of the coupon payments. O True False Bond prices and interest rates are proportionally related. For example, if the interest rate increase the bond price increases as well. O True O False If the coupon rate and the yield are the same, the bond price reflects a discount from par value. True O False Common Stock and Preferred stock are the same in terms of voting rights. O True O False All else equal, Price/Earning ratio should be higher for stocks with (0) Larger dividend payout, (ii) les risk, and (iii) larger growth. True False Internal Rate of Return (IRR) is the interest rate that results in Net Present Value (NPV) = 0. If IRR is lower than the Cost of capital, you accept the project. True False
