16. Carnival Cruise Line announces a stock offering on April 2. The offering price for its shares is $8.0, 9% below the price of $8.8 just prior to the announcement. United Airline Inc. on April 21 announces a stock offering to the public. The offering share price is $26.5, a 5% discount from the share price just before the announcement. These "underpricings or price discounts in stock offerings are consistent with which one of the capital structure theories? (A) Market Conditions, (B) Trade off, (C) Pecking Order Answer: 17. If you believe that CAPM correctly describes the relationship between stocks' expected rates of return and their risks, but you later find out that stocks of smaller companies consistently outperform the predicted returns by CAPM. Which one conclusion can you safely make? (A) the market is not efficient, (B) the CAPM is wrong (C) either the market is in-efficient or CAPM is wrong. Answer: 18. Which two below are typical responses to a financial or economic crisis? (A) the cost of capital of the Market portfolio rises, (B) the B's of all risky assets rise, (C) the costs of capital of riskless assets rise, (D) the yields- to-maturity of corporate bonds rise