..ll AT&T; 12:10 AM @ 63% - × 300 Final MOCK Sp 17.pdf N2 of 18 Class Date: Fina

Question

..ll AT&T; 12:10 AM @ 63% - × 300 Final MOCK Sp 17.pdf N2 of 18 Class Date: Final Mosk Floating-rate debt is advantageous to investces because the interest rate moves up if market rates rise. Since floating- rate debe shafts price risk to companies, it ofters no advantages to corporate issucrs . True b. False 10. Portfolio A has but one security, while Portfolio B has 100 securities. Because of diversification effects, we would expect Portfolio B to have the lower risk. However, it is possible for Pontfolio A to be less rsky. a. True b. False 11. The greater the number of compounding pcriods within a year, then (1) the greater the future valuc of a lump sum investment at Time and (2) the greater the present value of a piven lump sum to be received at some future date a. True b. False 12 Portfolio A has but one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion so its market value. Because of its diversification Peetfolio B will by definition be riskless a. True b. False 13. For capital budgcting and cost of capital purposes, the firm should always consider retained camings as the first souree of capital (ie., use these funds first) because retained earnings have no cost to the firm a. True b. False 14. Fee a project with cee initial cash outflow followed by a series of positive cash inflows, the modified IRR (MIRR) method involves compounding the cash infioms out to the end of the projecs lafe, summing those compounded cash flows to form a terminal value

Explanation / Answer

9. There are two sides of the coin with the rise in the floating rate of interest; One from the view point of the investors and another from the viewpoint of the corporate issuers. In case of rising interest rates the prevailing investors will be benefited since the investors will demand more as the market rates are higher while for corporate issuers the case is reverse. If the market rate rises automatically corporate issuers will have to pay more to the investors for their borrowed amounts. Thus the cost of floating debt rises. Hence the statement is True. So option (a) stands firm.

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