1. Which of the following statements is CORRECT?

a. Preferred dividends are not generally cumulative.

b. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.

c. Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.

d. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

e. Corporations cannot buy the preferred stocks of other corporations.

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2. Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?

a. Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.

b. Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.

c. Adding more such stocks will increase the portfolio's expected rate of return.

d. Adding more such stocks will have no effect on the portfolio's risk.

e. Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.

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3. Which of the following statements is CORRECT?

a. Typically, a firm's EBIT should exceed its EBITDA.

b. If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share.

c. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.

d. The more depreciation a firm has in a given year, the higher its EPS, other things held constant.

e. Typically, a firm's DPS should exceed its EPS.

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4. Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the

a. Variability of the stock price.

b. Option's time to maturity.

c. Strike price.

d. All of these.

e. None of these.

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5. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

a. The company gives customers more time to pay their bills.

b. The company repurchases common stock.

c. The company issues new common stock.

d. The company purchases a new piece of equipment.

e. The company pays a dividend.