1. Which of the following is most likely to be TRUE about a downward sloping yield curve?
It indicates that bond values are likely to fall in the future
It indicates that demand for long-term bonds is currently higher than demand for short-term bonds
It indicates that yields are currently relatively low
It indicates that inflation is likely to increase in the future
2. Mojo Mining has a bond outstanding that sells for $2,120 and matures in 18 years. The bond pays semiannual coupons and has a coupon rate of 6.66 percent. The par value is $2,000. If the company's tax rate is 40 percent, what is the aftertax cost of debt?
A. 3.96%
B. 6.24%
C. 5.82%
D. 3.66%
E. 3.45%