Question-1.(4 marks)

Explain why you agree or disagree with the following statements. Be specific in your answer and write only the most relevant explanations (Total Marks 4, Each 1.0).

a.Treasury bills are riskier than corporate bonds

b.A firm should select the capital structure that is fully unlevered.

c.Leveraged beta represents fundamental financial risk.

d.MM Proposition I with no tax supports the argument that a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.