Financial Management - Study Mode
[#1106] Cost of capital may be defined as:
Correct Answer
(D) Minimum Rate of Return that the firm should earn
[#1107] For a constant EBIT, if the debt level is further increased then:
Correct Answer
(B) EPS may increase
[#1108] A theory which states that assets are traded at price equal to its intrinsic value is classified as
Correct Answer
(B) efficient market hypothesis
Explanation
Solution: A theory which states that assets are traded at price equal to its intrinsic value is classified as efficient market hypothesis. The Efficient Markets Hypothesis is an investment theory primarily derived from concepts attributed to Eugene Fama's research work as detailed in his 1970.
[#1109] In capital asset pricing model, characteristic line is classified as
Correct Answer
(A) regression line
Explanation
Solution: In capital asset pricing model, characteristic line is classified as regression line. The Regression Line is the line that best fits the data, such that the overall distance from the line to the points (variable values) plotted on a graph is the smallest.
[#1110] All assets are perfectly divisible and liquid in
Correct Answer
(C) capital asset pricing model
Explanation
Solution: All assets are perfectly divisible and liquid in capital asset pricing model. The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.