1. What does a negative covariance between two assets imply?
A. That the returns of the two different assets tend to move in different directions.
B. That the two assets are mirror images of each other.
C. That the two assets tend to be in different industries.
D. That the probabilities of different economic scenarios tend to be equal to each other.
2. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The company also has 350 corporate bonds, each with $1000 par value, and the bond currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent.
What is the capital structure weight of the firm's debt?
A. 36.75%
B. 28.33%
C. 18.25%
D. 24.46%