Part B-

All else being equal, an increase in the yield to maturity of a bond will result in:

it is comparable to the average of all the interest rates on debt that currently prevail in the financial markets.

the weighted average cost of capital remains unchanged if the components costs of capital changes.

as long as the firm's investments earn returns greater than the cost of capital, the value of the firm will not decrease.

Marigold Inc.'s common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. Which of the following is the cost of newly issued common stock? (Round off the answer to two decimal places.)

17.53 percent

13.56 percent

16.47 percent

12.24 percent

All else being equal, an increase in the yield to maturity of a bond will result in:

an increase in the maturity value of the bond.

an increase in the market price of the bond.

a decrease in the rate of return at which the cash flows from the portfolios can be reinvested.

a greater interest rate price risk on a long-term bond than on a short-term bond.

Bouchard Company's stock sells for $20 per share, its last dividend (D0) was $1.00, its growth rate is a constant 6 percent, and the company would incur a flotation cost of 20 percent if it sold new common stock. Which of the following is the cost of issuing new common stock? (Round off the answer to two decimal places.)

12.63 percent

11.96 percent

10.24 percent

The greater the variability of the possible returns on an investment, _____.

the lesser the expected return the higher the actual return on the investment

the riskier the investment

the lower the standard deviation of the investment