26.a

b.

c.

d.

e.

Which of the following is TRUE? T-Bills generally yield a higher return than common stocks. Long-term corporate bonds generally yield a higher return than common stocks. Bonds with higher YTM will sell at a higher market price than otherwise identical bonds with lower YTM. The nominal interest rate exceeds the real interest rate when inflation is greater than zero. None of the above MacroDense Ltd. currently does not pay a dividend. There is a general consensus among analysts that the firm will start paying dividends in five years. The first dividend is predicted to be $1.00 and future dividends will grow at a rate of 6% per year after that. You require a 10% rate of return for assets of this risk. What is your valuation of MacroDense stock? $17.08 $25.00 $15.52 $23.45 None of the above Which of the following is NOT TRUE about equity and debt? Equity holders are protected by limited liability and their claim on firm value is the residual amount that remains after the debt holders are paid. Equity holders control the firm through voting rights and debt holders use the loan contracts to protect themselves. Interest payments for debt are tax-deductible for the corporation. Dividend of stocks is not tax-deductible for the corporation but tax-deductible for investors of the firm. Nonpayment of interest may result in creditors forcing the firm into bankruptcy. Therefore, firms should always issue equity instead of debt to finance their growing opportunities. None of the above Phil the Shill is trying to sell you an investment. Phil tells you that his investment pays an APR of 10% with quarterly compounding. What is the effective monthly rate of return that would yield the same EAR as that implied by Phil's quoted rate? 0.83% 0.85% 0.73% 0.78% None of the above Sarah has completed some risk & return calculations for a portfolio that contains two assets, X and Y. She found that the portfolio had zero variance but both individual assets, X and Y, had positive standard deviations. Which of the following is FALSE? The two assets' returns must have a perfectly negative correlation. The portfolio has a zero standard deviation. One of the two assets in this portfolio must be a riskless asset. The portfolio exhibits strong diversification effects. None of the above