1, Which of the following is true regarding the WACc? a. The WACC is equal to th

Question

1, Which of the following is true regarding the WACc? a. The WACC is equal to the firm s embedded debt cost times (1 the tax rate) b. The WACC can be estimated by taking the simple average of the cost of equity, cost of debt and cost of preferred stocks. c. The WACC is the required return on any investments a firm makes that have a level of risk equal to that of present operations. d. The WACC reflects the risk and target capital structure of the market as a whole e. None of the above .Which of the following would decrease a portfolio s systematic risk? a. Common stock with positive beta is sold and replaced with Treasury bills. b. Stocks with a beta equal to the market portfolio beta are added to a portfolio of Treasury bills. c. Low-beta stocks are sold and replaced with high-beta stocks. d. A stock is sold in favor of a different stock with the same beta e. The portfolio beta is less than one and the risk-free rate declines. The the beta coefficient the _the expected return, on average a. higher; higher b. higher; lower ?. lower; higher d. lower; lower or higher (depending on the level of the risk-free rate) e. None of the above 4. Regarding diversification, a. most of the benefits are realized with about 20 to 30 stocks b. it is the process of increasing the riskiness associated with individual assets by spreading an investment across numerous assets c. the portfolio returns are reduced, and the standard deviation of that portfolio remains unchanged d. there is no limit to the amount of risk that can be eliminated through this process e. None of the above

Explanation / Answer

1. Option C is correct as WACC is the required rate of return a firm decide at the current level of risk

2. Option A as portfolio of treasury bills has lowest systematic risk so adding this into portfolio will decrease systematic risk

3. Option as Beta coff is directly related to expectec return in CAPM

4.Option A

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