Question No. 1 What do you mean by Capital Structure? Briefly explain the Net Income Theory and Operating Net Income Theory of Capital Structure? What are the implications for managers? Question No. 2 What do you mean by Security Market Line? Suppose the riskfree rate goes up to 7%. What effect would higher interest rates have on the SML and on the returns required on high-risk and low-risk securities? (2) Suppose instead that investors' risk aversion increased enough to cause the market risk premium to increase to 8%. (Assume the risk-free rate remains constant) What effect would this have on the SML and on returns of highand low-risk securities? Question No. 3 Mr. Ali wants to invest his savings in different securities. He has obtained following information about historical prices. Required: You are required to analyze the above given information and recommend him the companies in which he can invest. - On the Basis of Arithmetic Mean which security will be selected? - On the Basis of Geometric Mean which security will be selected? - On the Basis of Standard Deviation which security will be selected? - On the basis of Coefficient of Variation, which security will be selected? - Why Arithmetic Mean and Geometric Mean gives different results? Question No. 4 You are considering two assets portfolio. You are required to compute the mean, standard deviation and coefficient of variation of two portfolios if and respectively