QUESTION 4 Firms generally choose to finance temporary current operating assets with short-term debt because Short-term debt is often less expensive than long-term (permanent) capital, The yield curve is normally downward sloping Short- term interest rates have traditionally been more stable than long-term interest rates, Atlem that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term. Short term debt contains many restrictive covenants and provisions. QUESTIONS Which of the following statements is CORRECT in regards to risk / diversification/beta? Wan Investor buys enough stocks he or she can, through diversification, eliminate all of the diversiflable risk inherent in owning stocks. Therefore, ita portfolio contained all publicly traded stocks, it would be essentially riskless. Astock's beta is less relevant as a measure of risk to an investor with a well-diversilled portfolio than to an investor who holds only that one stock A security's beta measures its non diversifiable, or market, risk relative to that of an average stock O Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return QUESTION Capital budgeting projects include all of the following features except for which one (according to the class slides? o Create a direction for the company tasting many years Determine the profitability of past projects Establish a firm's strategic direction Create major plans that are difficult to take back and change course Include large amounts of spending