True or false ? 10.suppose asset A and asset B are uncorrelated and both have a
ID: 2772144 • Letter: T
Question
True or false ?
10.suppose asset A and asset B are uncorrelated and both have a Sharpe ratio of .4. Then a portfolio consisting of equal investment in asset A and asset B will also have a Sharpe ratio of .4.
11. Glover Inc. has a WACC of .07 and a tax rate of .30. If it issues a preferred stock with a par value of $50 and an annual dividend of $4, its WACC will increase.
12. Glover Inc. has a WACC of .07 and a tax rate of .30. If it issues a zero coupon bond with a par value of $1000, a maturity of 10 years and a price of $500, its WACC will increase.
13. From 2000 to 2014, the amount of public debt raised by US firms is about 5 times the amount of public equity raised.
Explanation / Answer
10.suppose asset A and asset B are uncorrelated and both have a Sharpe ratio of .4. Then a portfolio consisting of equal investment in asset A and asset B will also have a Sharpe ratio of .4.TRUE because it follows the market portfolio with an equal investment in asset A and assest B will also have a Sharpe ratio of .4
11. Glover Inc. has a WACC of .07 and a tax rate of .30. If it issues a preferred stock with a par value of $50 and an annual dividend of $4, its WACC will increase.False because if a firm's debt is decreasing as compare to its competitors.
12. Glover Inc. has a WACC of .07 and a tax rate of .30. If it issues a zero coupon bond with a par value of $1000, a maturity of 10 years and a price of $500, its WACC will increase.TRUE because the price earning ratio looses its value when a firm has either zero or negative earnings.
13. From 2000 to 2014, the amount of public debt raised by US firms is about 5 times the amount of public equity raised.FALSE because it remained in between 4.5 to 6 times
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