Everything else equal, an asset's value is directly related to
- the cash flow the asset is expected to generate.
- the risk associated with the investment in that asset.
- the rate of return that the firm must earn to satisfy investors' demands.
- the cost of raising additional capital.
Which of the following is true of the change in the weighted average cost of capital of a firm?
-A decrease in the weighted average cost of the capital increases the value of the firm.
-Any change in the weighted average cost of capital results in no change in the value of the firm.
-A decrease in the weighted average cost of the capital increases the cash flow generated by the investments.
-A decrease in the weighted average cost of the capital decreases the value of the firm.
Which of the following is the only risk that is relevant to a rational, diversified investor?
-Unsystematic risk
-Market risk
-Diversifiable risk
Risk is indicated by variability, whether the variability is considered positive or negative. Both the positive and negative outcomes must be evaluated when considering risk.
-true
-false
The market for a stock is said to be in equilibrium when the _____.
-expected return on the stock is equal to its historical return
-expected return on the stock is equal to the market risk premium
-expected return on the stock is equal to its required return