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QUESTION

Choose the correct answer from the following choices. Make your selection clear and distinct, otherwise you will not get credit. 1. If then which of the following statement is correct The fir

Choose the correct answer from the following choices. Make your selection clear and distinct, otherwise you will not get credit.

1.     If  then which of the following statement is correct

  1. The firm offers superior investment opportunities.
  2. The value of the firm increases as plowback ratio b increases.
  3. Investors prefer that the firm payout earnings as dividends rather than reinvest earnings in the firm at an inadequate rate of return.
  4. The stock price is unaffected by the plowback ratio. Investors are indifferent

2.     Which of the following statements is correct with regard to bond valuation:

  1. All else equal, the longer the time to maturity, the smaller the interest rate risk.
  2. All else equal, the higher the coupon rate, the greater the interest rate risk
  3. When coupon rate is lower than the market interest rate, the bond will sell at a premium.
  4. Bond price will fall as the market interest rate rises, as the present value of the bond’s future cash flows is obtained by discounting at a higher interest rate.

3. MRP in the CAPM is also known as  _______.

            A)  most risky portfolio

            B)  excess market return

            C)  most risky performance

            D)        choice of risk-free asset

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