a. 19. Which of the following events would make it more likely that a company would call its outstanding callable bonds? The company's bonds are downgraded b. Market interest rates rise sharply Market interest rates decline sharply d. The company's financial situation deteriorates significantly e. Inflation increases significantly C. a. C. 20. Which of the following statements is CORRECT? An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks b. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock d. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well- diversified portfolio of stocks e. 21. Inflation, recession, and high interest rates are economic events that are best characterized as being... a. systematic risk factors that can be diversified away b. company-specific risk factors that can be diversified away among the factors that are responsible for market risk d. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers e. irrelevant except to governmental authorities like the Federal Reserve C. 22. The preemptive right is important to shareholders because it... a. allows managers to buy additional shares below the current market price b. will result in higher dividends per share c. is included in every corporate charter d. protects the current shareholders against a dilution of their ownership interests e. protects bondholders and thus enables the firm to issue debt with a relatively low interest rate 23. Which of the following statements is CORRECT? a. Preferred stockholders have a priority over bondholders to the income in the event of a bankruptcy, but not to the proceeds in the event of a liquidation b. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock C. Corporations cannot buy the preferred stocks of other corporations d. Preferred dividends are not generally cumulative e. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation
