Question 35 Today, General Motors announced a drop in demand for their products and warned investors that cash flows would likely be lower than previously expected going forward. This was a surprise announcement and was not anticipated by investors. Assuming markets are efficient, we should expect

The stock price to drop immediately and then go up or down over the next several months based on new announcements. In other words, after the immediate drop, all further increases/decreases will be based on new information and not be a response to today's announcement.

The stock price should increase because investors will now demand a higher rate of return.

The stock price should not respond because stock prices are fairly valued at all times.

The stock price to drop immediately and then continue to decline over the next several months due to the drop in cash flows.

Question 36 Sole Proprietorships expose their owners to unlimited liability while corporations offer their owners limited liability.

True

False

Question 37 A load charge refers to an upfront sales charge (not to exceed 8.5%) that is taken out of investors contribution before it is put into the fund. For example, if I make an investment of $10,000 into a mutual fund with a 3% load charge, $9700 actually gets invested into the fund.

True

False

Question 38 Everything else being equal, a bond with a call provision will likely have a higher yield than a bond without a call provision.

True

False

Question 39 Choose the correct statement regarding currency risk and international investing

All else equal, currency fluctuations will have no impact on US investors holding significant amounts of foreign securities

All else equal, a weaker US dollar is likely to benefit US investors holding significant amounts of foreign securities

All else equal, a stronger US dollar is likely to benefit US investors holding significant amounts of foreign securities

Question 40 All else equal, which would we expect to lead to an increase in the after-tax cost of debt? This is a multiple answer format question. Check all that apply.

An increase in the riskiness of our debt

An increase in the corporate tax rate

A decrease in the corporate tax rate