7) The correlation coefficient measures the A) degree of s unique risk present in the standard deviations of a pair of stocks. B) rate of return of individual stocks. direction of movement of the return of individual stocks. D) degree to which the returns of two stocks move together. 8) 8) The company cost of capital, when the firm has both debt and equity financing, is called the A) cost of debt. B) return on equity (ROE). cost of equity. D) weighted average cost of capital (WACC). 9 9 A statistical measure of the degree to which securities' returns move together is called a A) standard deviation. B) variance. c) correlation coefficient. D) geometric average. 10. If depreciation is 5600,000 and the marginal tax rate is 35 percent, then the tax shield due to depreciation is A) $390,000. B) S600,000 $210,000. D) The answer cannot be determined from the information given. 101 11) Beta is a measure of B) unique risk market risk. D) total risk. 12) One would expect a stock with a beta of 1.25 to increase in returns A) 125 percent more than the market in up markets. B) 125 percent more than the market in down markets. 25 percent more than the market in up markets. D) 25 percent more than the market in down markets. 13) 13) Investments A and B both offer an expected rate of return of 12. The standard deviation of A is 30 percent and that of B is 20 percent. If an investor wishes to invest in either or B, then the investor should A) prefer B to A. B) prefer A to B. prefer a portfolio including both A and B. D) The answer cannot be determined without knowing investors' risk preferences