6)

Which of the following would reduce a firm's WACC before tax?

a.

A supermarket chain decides to establish hardware stores which increases its sensitivity to market fluctuations.

b.

A firm issues shares and uses the proceeds to pay off a bank loan.

c.

A firm invests in an average-risk project using debt, rather than equity financing.

d.

A pharmaceutical research company develops a 100% effective COVID vaccine, which reduces its systematic risk in the market.

e.

A firm issues bonds and uses the proceeds to repurchase stock.

7)

You expect market interest rates to fall, while the rest of the market believes there will be an increase. Which of the following statements about fixed-coupon bonds is most correct?

a.

You should sell your bonds before the drop in interest rates.

b.

You should invest in short-term securities rather than long-term bonds.

c.

As the coupon rate is fixed, the interest rate change will have no impact on the bond.

d.

Bond yields and prices are expected to fall

e.

At the maturity date, regardless of changes in market interest rates, a bond price will be equal to the face value plus the coupon.