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1) Investment banks are hesitant to issue bonds when they perceive the interest rate to
be low.
2) To find the exact internal rate of return for projects with uneven cash flows, we can
interpolate between two present value annuity factors from Appendix D.
3) The "capital structure" of the firm consists of long-term debt and equity.
4) The coupon rate of the bond varies indirectly with changes in interest rates.
5) In order to reduce risk, one should diversify into areas that are positively correlated
with current areas of involvement.
6) Firms using commercial paper are generally required to maintain commercial bank
lines of credit equal to the amount of the paper outstanding.
7) Because they generally run a surplus budget, government agencies are able to issue
securities with slightly lower yields than direct Treasury issues.
8) Market values rather than book values should be used for determining the optimal
capital structure; however, in practice, book value is commonly used.
9) The investment banking industry has shifted its emphasis from mergers and
acquisitions to underwriting new securities.
10) The pretax cost of debt is generally less than the pretax cost of equity.
11) Transaction exposure results in foreign exchange gains and losses.
