Please evaluate the two statements below.

$1$: Investors prefer diversified companies because they are less risky

$2$: The contribution of a stock to the risk of a well$-$diversified portfolio depends on its market risk: $*$

a$.1$: False, $2$: False

b$.1$: False, $2$: True

c$.1$: True, $2$: False

d$.1$: True, $2$: True

The following information is be used to solve Questions $38$ and $39.$

$38.$ How many shares have been issued by the company?: $*$

$\backslash$table$[[$Common stock $($ $$0\mathrm{.}50$ par value$),$$$,100,000],[$Additional paid$-$in capital,$20,000],[$Retained earning,,$40,000],[$Common equity,$$,16,000],[$Treasury stock $(3,000$ shares$),6,000],[$Net common equity,$$,154,000]]$

a$.100,000$

b$.105,000$

c$.195,000$

d$.200,000$

$39.$ How many shares are outstanding for the company?: $*$

a$.194,000$

b$.197,000$

c$.200,000$

d$.203,000$

$40.$ Under which scenario would you get the biggest reduction in risk by spreading your investment across two stocks?: $*$

a$.$ There is perfect positive correlation

b$.$ There is perfect negative correlation

c$.$ The stocks are uncorrelated

d$.$ The stocks are slightly positively correlated

$41.$ A portfolio $($selected out of a total market portfolio of $500$ stocks$)$ consists of $4$ stocks with each having equal weighting. The first two stocks have a beta of $1\mathrm{.}4$ each while the other two stocks have a beta of $1\mathrm{.}8$ each. What is the portfolio's beta?: $*$

a$.$ Less than $1\mathrm{.}4$ since the addition of two stocks improved diversification

b$.1\mathrm{.}4$

c$.1\mathrm{.}6$

d$.$ Greater than $1\mathrm{.}6$ since the portfolio is not diversified

$42.$ Acme Company has debt outstanding with a market value of $$100,000$ and a yield to maturity of $9\%.$ Acme also has stock outstanding with a market value of $$200,000$ and an

expected annual return of $18\%.$ Its marginal tax rate is $35\%.$ What is its weighted average cost of capital?: $*$

a$.9\mathrm{.}0\%$

b$.13\mathrm{.}5\%$

c$.14\mathrm{.}0\%$

d$.15\mathrm{.}0\%$

$43.$ What happens to the value of a put option when the volatility of the underlying stock decreases $($all other things equal$)?$: $*$

a$.$ The value of the put option decreases

b$.$ The value of the put option stays the same

c$.$ The value of the put option increases

d$.$ There is not enough information to determine

$44.$ A $5$ year bond with annual coupon payments of $6\%$ is selling at $82\mathrm{.}50\%$ of par value. What is its yield to maturity?: $*$

a$.6\mathrm{.}0\%$

b$.10\mathrm{.}7\%$

c$.12\mathrm{.}0\%$

d$.17\mathrm{.}5\%$