1. Which of the following is true regarding an initial public offering?

a. The corporation gets proceeds from the investor.

b. Investors get proceeds from other investors.

c. The security is sold for the first time to the public.

d. Both a and c.

2. The present value of a perpetuity decreases when the _______ decreases.

a. number of investment periods

b. annual discount rate

c. perpetuity payment

d. both b and c

3. The present value of a single sum:

a. increases as the discount rate decreases.

b. decreases as the discount rate decreases.

c. increases as the number of discount periods increases.

d. increases as the discount rate increases.

4. Which of the following statements is true?

a. Systematic, or market, risk can be reduced through diversification.

b. Both systematic and unsystematic risk can be reduced through diversification.

c. Unsystematic or company risk can be reduced through diversification.

d. Neither systematic nor unsystematic risk can be reduced through diversification.

5. Investment risk is:

a. the probability of achieving a return that is greater than what was expected.

b. the probability of achieving a beta coefficient that is less than what was expected.

c. the probability of achieving a return that is less than what was expected.

d. the probability of achieving a standard deviation that is less than what was expected.