1. The Capital Asset Pricing Model (CAPM) uses beta as a measure of risk. A stock with a Beta more than 1.0 has historically been more volatile than the benchmark. Thus, a beta more than 1.0 is said to be than the benchmark (e.g, overall market)? a. Risker b. Less-risky c. Equally-risky d. Not enough information 2. Beta is widely available. What are weaknesses of using beta as a measure of market risk? a. It is based on historic volatility, which can change in the future. b. Beta can be different depending upon what index a company's stock price is compared. Beta is calculated over an arbitrary period of time in the past. Different time periods c. and result in different betas. d. All of the above. e. A&B only. 3. Characteristics of Equity include? a. It represents an ownership interest in a company b. Dividends to equity owners are paid after taxes. c. Equity owners owe taxes on dividends received. d. Last in line in the event of liquidation. e. All of the above 4. Characteristics of Debt include? a. It is not ownership in a firm. b. Interest paid on debt is tax-deductible. c. Debt is lower cost than equity. d. Debt is a liability of the firm. e. Debt holders have a legal claim on the assets of the firm. f. All of the above. 5. Given the risk of bankruptcy, why would a company use debt financing if it can be avoided? a. It lowers the cost of capital (the company WACC). b. At optimal levels, it increases the value of the firm. c. All of the above. d. None of the above. 6. Interest rate risk is the risk that interest rates may change while holding a particular bond. a. True b. False 7. All other things being equal, a bond with a longer time to maturity has greater interest rate risk. True a. b. False All else equal a bond with a lower coupon rate has greater interest rate risk than does a bond with a higher coupon rate. 8. a. True b. False