Financial Markets and Financing

Question 1

If two projects are completely and positively linearly dependent (or positively related, the measure of correlation between them is

Answer 1

+1

Question 2

If a firm starts expanding into new product lines, what happens to the beta and the required return on investment in its shares

Answer 2

Both will rise

The company will be taking on more risk therefore the beta will rise. Since the beta will rise, the required rate of return with also rise

Question 3

What forms of short-term borrowing are considered unsecured credit

Answer 3

revolving credit, bankers’ acceptances, line of credit, and commercial paper

Question 4

What is not true about financial markets

Answer 4

In perfectly competitive markets, financial intermediaries act as price setters to clear the market.