Reference no: EM131500919

[1] True or False?

(1) The risk-free rate is the dividend paid by the by the most secure stock in the equity market.

(2) To measure market risk of a stock, the Capital Asset Pricing Model uses the standard deviation of the returns on a stock.

(3) One important distinction between equity and debt is that most companies borrow forever, but dividend payments have a limited maturity.

(4) A conservative debt policy (a low debt ratio) can be of great comfort when a company suffers an adverse shock.

(5) By decreasing the proportion of fixed costs to total costs, and by making products less discretionary, companies can lower their cost of capital.

(6) The key advantage of a large portfolio of stocks is that it allows investors to diversify away market risk, but not specific risk.