According to the Principle of Risk-Return Trade-Off,investors require a higher r

ID: 2662119 • Letter: A

Question

According to the Principle of Risk-Return Trade-Off,investors require a higher return to compensate for__________.

diversification

less risk

greater risk

lack of diversification

Which (if any) statement is false?

The Principle of Self-Interested Behavior suggests thatself-interested capital market transactions force market pricestoward being fair prices.

The Principle of Two-Sided Transactions states that intensecapital market competition to get and use information to takeadvantage of arbitrage opportunities eliminates suchopportunities.

The Principle of Signaling states that information in thetransactions of others can be valuable, such as providing anaccurate measure of current market value, or information aboutexpected future value.

none of these answers are correct.

Which of the following is not an advantage of goingpublic?

Going public makes securities worth more because of theirdecreased liquidity.

Going public makes it easier for a firm to acquire other firmsin exchange for shares of its stock.

Going public makes the common stock negotiable and creates avisible market value.

Going public increase the firm's equity financingflexibility.

Which of the following is (are)true?

The Principle of Capital Market Efficiency states thatdifferences between financial assets are measured primarily interms of risk and return. Investors choose the highest return for agiven risk level.

The Principle of Comparative Advantage states that people applythe Principles of Self-Interested Behavior, Two-Sided Transactions,and Signaling to an environment characterized by similar financialassets, low transaction costs, and intense competition leads tocapital market efficiency.

The Principle of Valuable Ideas states that new ideas canprovide value when first introduced, even in an efficient capitalmarket.

all of these answers are correct.