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- QUESTION 13 Of the following, an example of a component of a firm’s cost of capital is ____. a. repurchase of company stock b. the purchase of another company’s bonds c. investment of corporate funds into a money market account d. the return on common stock required by investors QUESTION 17 The risk premium for an individual security is equal to the ____. a. weighted average of the individual security betas in a portfolio b. difference between the required return and the risk-free rate c. beta times the market return d. security's covariance divided by the variance of the market QUESTION 21 Which of the following statements about comparing capital budget techniques is (are) correct? I. The payback period is easy to understand and helps the firm identify how long it will be unable to use the initial investment for other projects. II. Mutually exclusive projects allow a firm to do other like projects (mutually…Which of the following statements regarding close-end investment companies, if any, is correct?1. Close-end funds continually create new shares as new monies are obtained.2. Close-end funds offer price guarantees a. 1 only.b. 2 only.c. Both 1 and 2.d. Neither 1 nor 2.Which of the following is an appropriate goal for the firm? Select one: a. All of these b. In secondary markets, outstanding shares of stock are bought and sold among investors. c. An active secondary market causes firms to sell their new debt or equity issues at a higher cost of funds. d. A secondary market allows investors to share their risk and return e. For an investor, the function of secondary markets is to provide profitability for the shares of securities they own.
- QUESTION 1 (a) Elaborate on business risk and financial risk. Suppose Firm A has greater businessrisk than Firm B. Therefore, Firm A should have a higher cost of equity capital.Justify.(b) Gigi considered constructing a portfolio for herself, discuss which school of thoughtwould be practical for her portfolio, the Traditional or Modern Portfolio Theory.(c) Dividends are important, but at the same time, dividend policy is irrelevant. Justify.which one is correct please confirm? QUESTION 24 All of the following methods may be used to determine the cost of equity capital (k e) for a non-dividend-paying stock EXCEPT ____. a. comparing with similar dividend-paying stocks in the industry b. the Capital Asset Pricing Model approach c. the risk premium on debt approach d. the simulation with growth expectations approachQuestion 5 a) “If markets are semistrong-form efficient, investors would only adopt passive investment strategies and buy into an index fund, rather than active strategies where they would have a portfolio manager select the components of their portfolios and seek for mispriced equities.” Explain if you agree with this statement, in no more than 150 words.
- USING PAST INFORMATION TO ESTIMATE REQUIRED RETURNS Use online resources to work on this chapters questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions. Chapter 8 discussed the basic trade-off between risk and return. In the capital asset pricing model (CAPM) discussion, beta was identified as the correct measure of risk for diversified shareholders. Recall that beta measures the extent to which the returns of a given stock move with the stock market. When using the CAPM to estimate required returns, we would like to know how the stock will move with the market in the future, but because we dont have a crystal ball, we generally use historical data to estimate this relationship with beta. As mentioned in Web Appendix 8A, beta can be estimated by regressing the individual stocks returns against the returns of the overall market. As an alternative to running our own regressions, we can rely on reported betas from a variety of sources. These published sources make it easy for us to readily obtain beta estimates for most large publicly traded corporations. However, a word of caution is in order. Beta estimates can often be quite sensitive to the time period in which the data are estimated, the market index used, and the frequency of the data used. Therefore, it is not uncommon to find a wide range of beta estimates among the various Internet websites. On the summary screen, you should see an interactive chart. Typically, you can chart performance over the last 24 hours, 1 month, 6 monthsup to 5 years, or even longer. Select different time periods and watch how the graph changes. On this screen you should also see a menu to select historical prices (historical data). Some websites will not only show daily activity but also weekly or monthly activity In addition, some websites will allow you to download the data into an Excel spreadsheet.which one is correct please confirm? QUESTION 27 All of the following methods may be used to determine the cost of equity capital (k e) for a non-dividend-paying stock EXCEPT ____. a. the risk premium on debt approach b. comparing with similar dividend-paying stocks in the industry c. the Capital Asset Pricing Model approach d. the simulation with growth expectations approachWhich of the following is INCORRECT description for private equity transactions? Group of answer choices a. There are liquid public markets for privately held securities such as NASDAQ. b. The process of creating value in private equity, whether building a brand-new company or turning around an established one requires significant time and means a long-term relationship. c. The general partner participates actively in the governance of the investment d. Private equity investing is a lot of work as gaining access to better opportunities requires active sourcing and negotiation
- Which of the following is not a way that a firm might seek to raise new capital?a. Initial Public Offering (IPO)b. Rights issuec. Stock splitd. Seasoned Equity Offering (SEO)e. All of the above are ways that a firm might seek to raise new capitalWhich one of the following is true regarding venture capitalists? I. They are large shareholders of the issuing firms and exit their investment in initial public offerings. II. They are large investors who want to buy the shares in initial public offerings. III. They tend to invest in young risky ventures. IV. They like underpricing in initial public offerings. A. I and II B. I and IV C. I, III, and IV D. I, II, III, and IV Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1? (6 marks)b. Differentiate between systematic and unsystematic risks. (4 marks)c. What is equity capital? Write two advantages and two disadvantages to the firm of raisingcapital this way. (5 marks)b) What is meant by capital structure and how is it different from financial structure?(5 mark