In general, the required rate of return is a function of (1) the time value of m
ID: 2709426 • Letter: I
Question
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.
Select one:
True
False
Proper diversification generally results in the elimination of risk.
Select one:
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.
Select one:
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.
Select one:
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.
Select one:
True
False
Variation in the rate of return of an investment is a measure of the riskiness of that investment.
Select one:
True
False
Explanation / Answer
1. False
The required rate of return is function of risk of asset and investor's attitude but not time value of money.
Time value of money as a concept means a buck today is worth more than a buck tomorrow.
2.True
Proper divesification eliminates systematic risk
3. False
Claims of subordinated debentures are more likely to be honored than unsubordinated one