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1. Empirical evidence shows that forward rates are

A. upward-biased predictors of future spot rates

B. downward biassed predictors of future spot rates

C. unbiased predictors of future spot rates

2. Empirical evidence suggests that historically, short-term T-notes trade at higher yields relative to long-term T-notes or T-bonds most of the time. True or False?

3. Company X operates in a highly competitive industry, in which no company has a significant market share, and where there are low barriers to entry. Which of the following best describes company X's ability to take on substantial debt?

A. Its ability is high because companies in industries with those characteristics typically have high operating margins and cash flows that can support significant debt levels.

B. Need more information

C. Its ability is limited because companies in industries with those characteristics generally cannot support high debt levels.

4. Which of the following would not be a bond covenant?

A. The company must file financial statements with the bond trustee on a regular and timely basis.

B. All the others would be typical bond covenants

C. the company's debt-to earnings ratio may not exceed a certain threshold

D. The company can issue new debt as much as the management likes.

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