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Question 10.10. Which of the following is/are true? I. Preferred dividends per share are usually not cut or suspended unless the firm is faced with

Question 10.10. Which of the following is/are true?

I. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems.

II. Preferred stockholders have a prior claim on the income and assets of the firm as compared to the claims of lenders.

III. The par value of a stock is always the same as the initial selling price.

IV. Preferred stock dividends per share are normally not increased as the earnings of the firm increase. (Points : 3.3)

I and III.

I, III and IV.

I and IV.

I, II and IV.

Question 11.11. The expected return for Asset S is 20%, and it has a standard deviation of 4%. The expected return for Asset T is 40%, and it has a standard deviation of 7%. Which of the following is a CORRECT statement? (Points : 3.3) A or B

a) Asset T is the less risky investment of the two investments.

b ) Asset S is the less risky investment of the two investments.

Question 12.12. Which of the following is/are TRUE?

I. With a perfect negative correlation of returns between two securities (i.e., the correlation coefficient is equal to -1), there will always be some proportion of the securities that will result in the complete elimination of portfolio risk.

II. The systematic (market) risk is nondiversifiable, and the unsystematic risk is diversifiable.

III. The efficient portfolios provide the highest possible return for a given level of risk (i.e., for a given standard deviation).

II.

I and II.

II and III.

III.

I, II and III.

Question 13.13. Which of the following is/are TRUE?

I. When the stock split is two-for-one, the number of shares is doubled.

II. Reverse stock splits are stock splits in which the number of shares is increased.

III. To increase retained earnings is NOT a reason a firm may decide to repurchase its own stock. (Points : 3.3)

I only.

II only.

II and III.

I and III.

All of the above.

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