Please answers all questions 4, 5, and 6. Thanks.

Question 4

Weatherall Enterprises has no debt or preferred stockit is an all-equity firmand has a beta of 2.0. The chief financial officer is evaluating a project with an expected return of 14%, before any risk adjustment. The risk-free rate is 5%, and the market risk premium is 4%. The project being evaluated is riskier than an average project, in terms of both its beta risk and its total risk. Which of the following statements is CORRECT?

	A.	Riskier-than-average projects should have their expected returns increased to reflect their higher risk. Clearly, this would make the project acceptable regardless of the amount of the adjustment.
	B.	Capital budgeting projects should be evaluated solely on the basis of their total risk. Thus, insufficient information has been provided to make the accept/reject decision.
	C.	The accept/reject decision depends on the firm's risk-adjustment policy. If Weatherall's policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project.
	D.	The project should definitely be accepted because its expected return (before any risk adjustments) is greater than its required return.
	E.	The project should definitely be rejected because its expected return (before risk adjustment) is less than its required retu

Question 5

Which of the following statements is CORRECT?

	A.	Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.
	B.	Call options generally sell at a price less than their exercise value.
	C.	If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.
	D.	Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.
	E.	If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

Question 6

Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? X YPrice $30 $30Expected growth (constant) 6% 4%Required return 12% 10%

	A.	Stock Y has a higher dividend yield than Stock X.
	B.	One year from now, Stock X's price is expected to be higher than Stock Y's price.
	C.	Stock X has the higher expected year-end dividend.
	D.	Stock X has a higher dividend yield than Stock Y.
	E.	Stock Y has a higher capital gains yield.