Problem THREE: Indifference Tax Rate An investor purchases the corporate bond. Why? An investor purchases the municipal bonds. Why? An investor is indifferent. Why? (calculated rate) What assumption must be made about these investment options?

How does the equity method discourage the manipulation of net income by investors?

Which one of the following statements related to capital gains is correct? Multiple Choice O O O O The capital gains yield includes only realized capital gains. An increase in an unrealized capital gain will increase the capital gains yield. The capital gains yield must be either positive or zero. The capital gains yield is expressed as a percentage of a security's total return. The capital gains yield represents the total return earned by an investor.

What is the definition of “opportunity cost” as it relates to the time value of money? It is the loss of a potential gain choosing one alternative over another, particularly ignoring the time value of money. It is the benefit side of the cost/benefit ratio. It is the price of selling an asset. It is the amount of money invested in saving bonds. explain

Why would a risk- averse (likes to avoid risks)type of investor prefer fixed income over equities?

Q.Regarding the concept of opportunity cost, one affirmation is false. Which one is it? a. is not relevant in fundamental analysis b. is the rate of return given up by an investor, in order to gain another rate of return c. can play both the role of a discount rate or a capitalizing rate d. is relevant in determining the fair value of derivatives and corporate bonds e. is always computed as a percentage indicator

Changes in interest rates, or changes in tax law, are both examples of what type of risk? A) Firm specific B) Systematic C) Unsystematic D) Diversifiable

Which of the following statements is correct? Multiple Choice   All of the statements are correct.   The weighted average cost of capital is calculated on a before-tax basis.   The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation.   An increase in the market risk premium is likely to increase the weighted average cost of capital.

Of the following, the most likely effect of an increase in income tax rates would be to: A)  Decrease the savings rate B)  Decrease the supply of loanable funds C)  Increase interest rates  a. All statements are correct. b. Only one statement is correct. c. Only one statement is incorrect.

Why do we use an after-tax figure for the cost of debt but not for the cost of equity? Explain yourreasoning and show your workings.