Which of the following is/are true?
I. According to the pecking order theory proposed Stewart Myers of MIT, firms prefer to source external debt rather than issue new equity.
II. According to the pecking order theory proposed Stewart Myers of MIT, firms avoids issuing because they don't want to commit to paying dividends on the new equity.
III. According to the pecking order theory proposed Stewart Myers of MIT, for financing needs, firms prefer to first tap internal sources such as retained profits and excess cash.
I and III only
II only
II and III only
I and II only
I, II, and III
2. Which of the following is/are true?
I. If the returns from the two assets are perfectly positively correlated (that is, the correlation coefficient between these two asset is 1), there will always be some proportion of the assets that will result in the complete elimination of portfolio risk.
II. If the returns from the two assets are zero correlated (that is, the correlation coefficient between these two asset is zero), the risk of the portfolio is below the weighted average of the total risk of the individual assets.
I only
II only
Both I and II
Neither I nor II