DE/FALSE. Choose "A" if the statement is true and 'B' if the statement is false. 1Over the period between 1926 to 2014, the average yearly retum on large stocks is higher than that of long term government bonds. 2) If a shareholder buys stocks on dividend payment date, the buyer gets the dividends on those shares. 3) When we apply one WACC to evaluate all projects with different levels of risk, we could correctly reject low risk projects and accept high risk projects. 4) Security A lies above SML because A is overpriced. (5)One problem with the decision criterion of IRR is that if cash flow is non-conventional, there could be multiple TRRs for a single project. 6) Portfolio standard deviation is a weighted average of standard deviations of all assets in the portfolio 7) Interest expenses to bondholders and dividend payments to preferred stockholers are both tax deductible to the firm. 8) The price of a bond and its YTM are positively related. 9) Systematic risk (also called non-diversifiable risk) has general impact on a large number of assets in the market. 10) The Truth in lending Law" in the United States require banks to advertise their rates on investments such as CDs and savings accounts as annual percentage yields (APY). 1.6$x CIE 11) Capital budgeting decisions are typically long-term decisions. RE: angot 1.66x (27.4.10 2) = MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. (12) The common stock of Contemporary Interiors has a beta of 1.65 and a standard deviation of 27.4 percent. The market rate of return is 13.2 percent and the risk-free rate is 4.8 percent. What is the cost of equity for this tim? AY24.40% 7 B) 26.58% C) 18.66% D) 21.08% 13) A local brokerage firm is offering a zero coupon certificate of deposit for $10,000. At maturity, three years from now, the investor will receive $14,000. What is the rate of return on this investment? A) 12 percent B) 11 percent C) 14 percent D) 13 percent 14) The Black Horse is currently considering a project that will produce cash inflows of $12,000 a year for the years followed by $6,500 in year 4. The cost of the project is $38,000. What is the profitability index if the discount rate is 7 percent? A) 1.04 B) 0.96 C)1.09 1 + D) 0.99 arou