Choose the correct answer from the following choices. Make you selection clear and distinct otherwise you will not get credit ROE, k then which of the following statement is correct the firm offers superior investment opportunities. The value of the firm increases as plowback ratio b increases. Investors prefer that the firm payout earnings as dividends rather than reinvest earnings in the firm at an inadequate rate of return. The stock price is unaffected by the plowback ratio. Investors are indifferent Which of the following statement is correct with regard to bond valuation: All else equal the longer the time to maturity, the smaller the interest rate risk, All else equal. The higher the coupon rate, the greater the interest rate risk When coupon rate is lower than the market interest rate, the bond will sell at a premium. Bond price will fall as the market interest rate rise, as the present value of the bond s future cash flows is obtained by discounting at a higher interest rate. According to the capital asset pricing model. _. expected return of a stock depend on its unsystematic risk. in market equilibrium, all securities will have different security market line underpriced securities lie above the security market line overpriced securities lie above the security market line Consider the CAPM. The risk-free rate is 4% and the expected market risk premium is 7%. What is the beta on a stock with an expected return of 12%? 1.171 2.667 1.M3 1.257 All other things equal, which of the following bond price is more sensitive to interest rate changes? a 10 year bond with a 10% coupon a 20 year bond with a 7% coupon a 20 year bond with a 10% coupon a 30 year bond with 7% coupon