1. Which statement is false?

• A. A corporation is not required to pay a dividend to its common shareholders.
• B. Only financial institutions can provide financial intermediation.
• C. Shareholders can vote by proxy for members of the board of directors, but they are not required to vote that way.
• D. As a general rule, a lower beta indicates a less risky stock in a well-diversified portfolio.

2. The cost of equity is generally greater than the cost of debt because

• A. equity has the residual claim on cash flows of the corporation.
• B. interest paid on debt is tax deductible.
• C. both a. and b.
• D. neither a. nor b.

3. As the price of a T-bill falls, its yield falls, too.

• A. True
• B. False

4. Which is the correct statement?

• A. The greater the expected return, the greater the risk that must be taken.
• B. The greater the expected risk taken, the greater the return earned.
• C. The greater the return, the greater the risk that must be taken.
• D. The greater the expected risk taken, the greater the expected return given.