In general, the required rate of return is a function of (1) the time value of money, (2) the risk of an asset, and (3) the investor's attitude toward risk.

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True

False

Proper diversification generally results in the elimination of risk.

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True

False

Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in the event of liquidation.

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True

False

The expected rate of return from an investment is equal to the expected cash flows divided by the initial investment.

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True

False

The most relevant form of growth for valuing a firm's common stock is internal growth.

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True

False

The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.

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True

False

The required rate of return for an asset is equal to the risk-free rate plus a risk premium.

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True

False

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

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True

False

Total risk equals systematic risk plus unsystematic risk.

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True

False

Variation in the rate of return of an investment is a measure of the riskiness of that investment.

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True

False