1. The "portfolio effect" in capital budgeting refers to

the degree of correlation between various investments.

the coefficient of variation.

the relationship of stocks to bonds.

the risk-adjusted discount rate.

2. Which of the following is NOT true about the life-cycle growth and dividend policy?

In the growth stage, a firm pays stock dividends.

In the expansion stage, a firm pays low to moderate cash dividends and occasionally may have stock splits.

In the development stage, a firm usually pays stock dividends and some low cash dividends.

In the maturity stage, a firm usually pays moderate to high dividends.