PART 3: Short Answer Question (10 * 3-30') 1) A. A lending institution would prefer that a firm have a lower/higher debt- equity ratio and a higher/lower times interest earned ratio, Why? Circle the answer and explain. (3) B. Explain What is P/E ratio, Does investors prefer high P/E ratio? (2') C. Returns on the stock of First Boston and Midas Metals for the years 2010-2013 are shown below. Portfolio 2010 2011 2012 2013 | a. Avg. b. St. Dev. First Boston -18.00% 32.00% 18.00% 8.00% 10.00% Midas Metals 26.00% -5.00% | 3.00% 7.00% 7.75% 0.22 0.13 When a portfolio consisting of 50% First Boston and 50% Midas. Compute the annual return for portfolio each year. (Fill in the form)(6) D. Are the stocks positively or negatively correlated and what is the effect on risk? (Do the analysis based on portfolio weight and standard deviation results, not required to do the calculation) (3)