1. The required return for an investment in a company is 13%. The company is currently earning an actual return on its invested capital of 16%. Which of the following statements are true?

A. The company is earning normal profits.
B. More financial capital will flow into this company
C. Both a and b
D. Neither a nor b

2. The expected rate of return on a stock investment is 10%, based on the current market price. The stock has a beta coefficient of 1.5. The risk free rate is currently 1%, and the market risk premium is 6%. Which of the following statements is true?

A. The price of the stock should rise in the investment markets.
B. The price of the stock should fall in the investment markets.
C. The price of the stock should remain the same in the investment markets
D. It is impossible to tell what should happen to the stock price given the available information.

3. A bond currently yields 8.0% in the investment markets. Assessments of risk indicate that investors would require a 6.0% return on bonds of similar term and risk. Which of the following statements are true?

A. The market price of the bond should increase and the yield should fall.
B. The market price of the bond should increase and the yield should rise.
C. The market price of the bond should decrease and the yield should fall.
D. The market price of the bond should decrease and the yield should rise.

4. A company is earning accounting profits of $3.46 million, representing a 20% return on invested capital. Which of the following statements are true?

A. The price of this company's stock should be rising.
B. The price of this company's stock should be falling.
C. The price of this company's stock should remain the same.
D. It is impossible to tell what should happen to the price of this company's stock given the available information.