If inflations is expected to be relatively low, these interest rates will tend t

Question

If inflations is expected to be relatively low, these interest rates will tend to be relatively low, other things held constant. True False The cost of debt and the cost of equity will increase in the case that the risk free rate increases but the market risk premium remains constant. True False Which of the following in primary market transaction? You sell 200 shares of IBM stock on the NYSE through your broker. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker; you just give him cash and he gives you the stock. IBM issues 2,000.000 shares of new stock and sells them to the public through an investment banker. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction. IBM sells 2,000.000 shares of treasury stock to its employees When they exercise options that were granted in prior years. Which of the following is CORRECT? A graph of the SML as applied to individual stocks would show repaired rates of return as the vertical axis and standard deviations of returns on the horizontal axis. The CAPM has been thoroughly tested, and the theory has been confirmed beyond any reasonable doubt. If two "normal" or "typical" stocks were combined to form a 2-stock portfolio the portfolio's expected returns would be a weighted average of the stocks? expected returns, but the portfolio's standard deviation would probably be greater than the average of the stocks standard deviations. become more risk averse, then (I) the slope of the SML would increase and (2) rate of return on low-beta stocks would increase by more than the required on high-beta stocks. In expected inflation, combined with a constant real risk-free rate and a constant

Explanation / Answer

2)True .As interest rates are effected by inflation

3)False ,Only cost of equity will increase

4)correct option is "C" -Here company itself issues the shares for first time .

5)correct option is "C" -Expected return would be weighted average return but standard deviation is not and expected to be more than return .

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