Unsystematic risk Multiple Choice Is related to the overall economy is measured by beta Cannot be avoided if you wish to participate in the financial markets Can be effectively tinated through portfolio diversification la compensated for by the risk premam According to the CAPM, an security that has more systematic risk than the market: Multiple Choice Should have a reward to risk ratio which is greater than that of the market will have a beto greater than O but less than 1 Should earn a rate of return which places it on the security market line Will earn a rate of return that is greater than the risk free rate but less than the market rate. Should earn a rate of return which places it above the security market line. Regarding cost of equity capital estimates computed using the SML approach, which of the following is false? Multiple Choice The SML applies only to firms with stable dividend growth rates To implement this approach the financial manager must estimate a market risk premium and a beta coefficient Like the dividend growth modet, SMI. generally relies on using the past to predict the future. The quality of the estimate using the SML approach is sensitive to the quality of the estimates for the input variables in the model Unlike the dividend growth model, the SMI estimate adjusts for risk The costs incurred by a company when it sells new issues of bonds or stocks are: Multiple Choice O Required rates of return Costs of capital Costs of equity and detst Flotation costs Capital structure weights