MULTIPLE CHOICE (25%) circle correct answer(s) 1. A diversified portfolio may include 1. only stocks of airline companies 2. bonds of utilities 3. stocks and bonds 4. only shares of money market mutual funds 2. If a company fails to meet the terms of the indenture, it is 1. bankrupt 2. in default 3. profitable 4. in registration 3. Which of the following is not equity 1. paid-in-capital 2. retained earnings 3. preferred stock 4. convertible bonds The risk associated with dispersion around the expected value (e.g., expected return) is measured by the 1. beta coefficient 2. range (i.e., high-low values) 3. standard deviation 4. debt ratio 4. The beta coefficient of 1.2 implies 1. the stock is more risky than the market 2. the stock's return is 1.2 times the return on the market. 3. the stock is less risky than the market 4. the market's return is 1.2 times the return on the stock 5. (a) 1 and 2: (b) 1 and 4 (c) 2 and 3: (d) 3 and 4 As a firm uses excessive amounts of debt financing 1. its debt ratio increases 2. the value of its stock declines 3. its cost of capital increases 6. (a) 1 and 2: (b) 1 and 3: (c) 2 and 3; (d) all (1,2 &3) nterest rate isS 128 annually 1. $100 compounded for three years. 2. $100 annuity compounded for three years. 3. the present value received after three years. 4. the answer can't be determined. A firm should not make an investment if the IRR is 1. grater than the cost of capital. 2. less than the cost of capital. 3. grater than the interest rate. 4. less than the interest rate. 8