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51) Which of the following statements is true? A. The

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51) Which of the following...
51) Which of the following statements is true?

A. The Principle of Incremental Benefits says to consider the possible ways to minimize the value lost to capital market imperfections, such as asymmetric taxes, asymmetric information, and transaction costs.
B. The Principle of Valuable Ideas suggests to look for opportunities to create value by issuing securities that are in short supply, perhaps resulting from changes in tax law.
C. The Time Value of Money Principle advises to include any time-value-of-money tax benefits from capital structure choices.

D. all of these



52) Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is _________.

A. being sold by insiders

B. undervalued

C. caught up in a bear market
D. overvalued



53) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

A. Each stock in the portfolio will have a beta greater than one.

B. Each stock in the portfolio has its own beta.

C. An investor cannot change the risk of this portfolio by her choice about personal leverage (lending or borrowing).
D. Selling any stock in this portfolio will lower the beta of the portfolio.



54) __________ says to look for opportunities to invest in positive-NPV projects in foreign markets or to develop derivatives or design arrangements that enable firms to cope better with the risks they face in their foreign operations.

A. The Principle of Valuable Ideas

B. The Principle of Risk-Return Trade-off

C. The Principle of Capital Market Efficiency
D. The Principle of Diversification



55) An all-equity-financed firm would __________.

A. pay corporate income taxes if its taxable income is positive

B. not pay corporate income taxes because it would have no interest expense.

C. pay corporate income taxes because it would have interest expense.

D. not pay any income taxes because interest would exactly offset its taxable income.


56) According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for __________.

A. greater risk

B. less risk

C. diversification

D. lack of diversification


57) The conversion price (for a convertible security) is usually adjusted __________.

A. for a new debt offering.
B. for stock splits.

C. for cash dividends.

D. all of these



58) The financing decision best addresses which of the following questions?

A. Should we give employees stock options?

B. Should we increase our inventory?

C. Should we issue common stock or convertible debt?
D. Should we buy this piece of land?



59) The investment decision best addresses which of the following questions?

A. Should we increase our advertising budget?

B. Should we borrow in a foreign currency?

C. Should debt be short-term?

D. Should we buy new equipment?



60) __________ says to use derivatives to pay others to take risks.

A. The Principle of Self-Interested Behavior

B. The Principle of the Time Value of Money

C. The Signaling Principle

D. The Principle of Two-Sided Transactions



61) __________ says to recognize the value of options contained in derivatives.

A. The Principle of Comparative Advantage

B. The Options Principle

C. The Capital Market Efficiency Principle

D. The Principle of Valuable Ideas




62) Which of the following is (are) true?

A. The Principle of Risk-Return Trade-Off states that differences between financial assets are measured primarily in terms of risk and return.

B. The Principle of Capital Market Efficiency states that people apply the Principles of Self-Interested Behavior, Two-Sided Transactions, and Signaling to an environment characterized by similar financial assets, low transaction costs, and intense competition leads to capital market efficiency.
C. The Principle of Valuable Ideas states that new ideas can provide value when first introduced, even in an efficient capital market.

D. all of these answers are correct.



63) Which (if any) statement is false?

A. The Principle of Self-Interested Behavior suggests that self-interested capital market transactions force market prices toward being fair prices.
B. The Principle of Two-Sided Transactions states that intense capital market competition to get and use information to take advantage of arbitrage opportunities eliminates such opportunities.
C. The Principle of Signaling states that information in the transactions of others can be valuable, such as providing an accurate measure of current market value, or information about expected future value.
D. none of these answers are correct.



64) Which of the following is (are) true?

A. The Principle of Capital Market Efficiency states that differences between financial assets are measured primarily in terms of risk and return. Investors choose the highest return for a given risk lev
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Tutor: Ellen, Lawyer replied 5 years ago
51) Which of the following statements is true?


D. all of these



52) Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is _________.

D. overvalued


please let me know when I should proceed
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