1. We can estimate a firm's cost of debt by ____________.

A. observing the coupon rate on the firm's outstanding debt

B. observing the yield-to-maturity on newly-issued debt of other firms without regard to risk

C. observing the yield-to-maturity on the firm's outstanding debt

D. observing the risk free rate of interest and adding a risk premium to the coupon rate of existing debt

E. observing the firm's bank borrowing rate on short-term loans

2. Which of the following typically applies to preferred stock but NOT to common stock?

A. par value

B. dividend yield

C. pays dividends

D. it is rated

E. dividends paid are tax deductible

3. No matter how many risky assets we invest in, we cannot reduce our risk below the _____ level of risk in our portfolio.

I. market

II. unsystematic

III. diversifiable

A. I, II and III

B. I only

C. II only

D. II and III only

E. I and II only