1. The cost of capital is:

a. the minimum required return on a new investment.

b. another term for the market risk premium.

c. the return on the overall market.

d. another term for the risk-free rate of return.

e. the maximum cost of issuing a new security.

2. Which one of the following is an example of systematic risk?

a. an increase in federal tax rates

b. employee walkout in protest of a firm's promotion policies

c. surprise firing of a firm's chief financial officer

d. acquisition of a competitor by a retail firm

e. layoffs by a major retailer