1.

The difference between the weighted-average cost of capital (WACC) and the pre-tax (unlevered) WACC is

A.the weighted-average cost of capital multiplies the cost of debt by (1-tax rate) and the pre-tax WACC does not.

B.the weighted-average cost of capital is based on the after-tax cost of equity and the pre-tax WACC is based on the after-tax cost of debt.

C.the weighted-average cost of capital multiplies the component costs of equity and debt by their weight in the capital structure, and the pre-tax WACC does not.

D.the weighted-average cost of capital multiplies the cost of equity and the cost of debt by (1-tax rate) and the pre-tax WACC does not.

2.

Which of the following statements is FALSE?

A.U.S. Treasuries are never subject to interest rate risk unless we select a maturity equal to our investment horizon.

B.Many practitioners analyze other financial characteristics of a firm, when they forecast betas.

C.When using historical returns to forecast future betas, we must be mindful of changes in the environment that might cause the future to differ from the past.

D.If a firm where to change industries, using its historical beta would be inferior to using the beta of other firms in the new industry.

3.

Which of the following statements is FALSE?

		A.The book-to-market is the observation that firms with high book-to-market ratios have positive alphas.
		B.Portfolios with high market capitalizations will have positive alphas if the market portfolio is not efficient.
		C.Portfolios with low book-to-market rations will have negative alphas if the market portfolio is not efficient.
		D.If the market portfolio is not efficient, then a portfolio of high book-to-market stocks will likely have positive alphas.