QUESTION 6 Firms should adjust for execution risk by A ignoring execution risk since it is diversiable. '\" noticing missteps in the rm's execution of new projects. A capturing this risk in the expected cash ows generated by the project. '" assigning a higher cost of capital to new proiects. QUESTION 7 Which of the following statements is FALSE? "\" When using historical returns to forecast future betas, we must be mindful of changes In the environment that might cause the future to differ from the past. '\" If a rm where to change industries. using its historical beta would be inferior to using the beta of other rms in the new industry. " U.S. Treasuries are never subject to interest rate risk unless we select a maturity equal to our investment horizon. '\" Many practitioners analyze other nancial characteristics of a firm, when they forecast betas. QUESTION 3 John Galt is a mutual fund manager at Atlas Asset Management. He can generate an alpha of 2% a year up to $500 million of invested capital. After that amount his skills are spread too thin, so he cannot add value and his alpha is zero for all investments over $500 million. Atlas Asset Management charges a fee of 0.80% on the total amount of money under management. Assume that there are always investors looking for positive alpha investments and no Investor would invest In a fund with a negative alpha. Assume that the fund Is in equilibrium, meaning that no investor either takes out money or wishes to invest new money into the fund. The amount of fee income that Galt's fund will generate is closest to: 0' $8.00 million A $3.75 million A $25.00 million A' $10.00 million