1
interestrates on 1-year, 2-year, and 3-year treasury bills are 5%, 6% and 7%respectively. Asuume that the pure expectations theory holds and that themarket is in equilibrium. Which of the following statement is most correct?
a.the maturity risk premium is negative.
b.interest rates are expected to rise over the next two years.
c.the market expects one-year rates to be 5.5% one year from today.
d.none of the above statement is correct.
2thisis the portion of total risk that is attributable to overall economic factors.
a.
a.Firmspecific risk
b.
b.Marketrisk
c.
c.Modernportfolio risk
d.
d.Totalrisk
3Pepsicorporation’s current ratio is 0.5, while Coke Company’s current ratio is 1.5.Both firms want to “window dress” their coming end-of-year financialstatements. As part of their window dressing strategy, each firm will doubleits current liabilities by adding short-term debt and placing the fundsobtained in the cash account. Which of the statements below best describes theactual results of these transactions?
a. a Thetransactions will have no effect on the current ratios
b.
b Thecurrent ratios of both firms will be increased
c.
c Thecurrent ratios of both firms will be decreased
d.
d OnlyPepsi corporation’s current ratio will be increased