1. Which of the following is not considered as the advantage of a company structure?

a. The shareholders of most companies have limited liability.

b. A company is a legal entity distinct from the owners, which enables it to conduct its operations in its own name.

c. A company has an indefinite life, unlike a sole proprietorship or partnership, its existence and operations are unaffected by the death or retirement of its owners.

d. There can be conflict of interest between those who own the company (shareholders) and those who make decisions on their behalf (managers).

2. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. The risk-free rate is closest to:

0%

4%

16%

8%

3. According to Modigliani and Miller:

A) The market value of a firm does not depend on its capital structure

B) For their proposition to be true, capital markets must be well functioning and efficient

C) Financial managers cannot increase the value of the firm by changing the mix of securities used to finance the firm

D) All of the above