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Problem 1. A statistical measure of the degree of correlation between two quantitative variables is called:
j. correlation
k. covariance
l. correlation coefficient
m. beta
Problem 2. Which of the following best illustrates a formal model of the relationship between risk and return?
a. Security Market Line (SML)
b. Capital asset pricing model (CAPM)
c. Weighted Average Cost of Capital (WACC)
d. Earnings before income taxes-earnings per share (EBIT-EPS)
Problem 3. The variation in return on an investment caused by general economic factors that affect all investments is called:
a. systematic risk
b. nonsystematic risk
c. nondiversifiable risk
d. firm-specific risk
Problem 4. The discount rate such that the net present value of a stream of cash flows is zero is called the required rate of return.
True
False
Problem 5. Flexibility, Risk, Income, Control, Timing, and Other (FRICTO) are factors to consider in capital structure decisions.
True
False