1. A firm with optimistic prospects, if given the choice between raising capital through debt or equity,

a. the firm would use debt

b the firm would use equity

c the firm would use neither

d none of the above.

2. Beta coefficients are calculated the same way by all major data services such as Yahoo, Bloomberg, and Value line

T RUE FALSE

3. The cost of debt

a. is the return the firm's competitors demand on new borrowing b is generally the interest rate observed in the financial markets

c is the only cost component that effects taxes (interest expense)

4. If ABC Company recently issued preferred stock with a $50 par value. The issue pays $2.75 in

annual dividends and is currently trading at $52. What is ABC's cost of preferred stock ?

5. Following are the returns of three companies in an investors portfolio, and the asset values Beta Dollars Stock A 5.00% 6,250 Stock B 6.25% 3,000 Stock C 10.00% 3,250 Calculate the portfolios return a 0.50% b 1.50% c 3.90% d 6.60%