True and false

1. A US$ corporate bond can never have a yield lower than a US government bond with the same maturity.

2. If interest rates rise a 10-year zero coupon bond would fall by about half as much as a 5-year zero coupon bond.

3. The capital appreciation on the Nikkei 225 index understates the investor’s actual realized return.

4. The Green Bay Packers are the only publicly owned NFL team. The stock in this team would have a great deal of systematic risk.

5. If the 10-year fixed-rate corporate bond of Morgan Inc. has a yield 50bp (.5%) higher than the 10-year government bond rate we know that the Morgan bond has very little risk.

6. The stock with the highest standard deviation of return should earn the highest rate of return.

7. If asset A has a standard deviation of .2 and asset B has a standard deviation of .2, then any portfolio that involves positive investment in both asset A and asset B will also have a standard deviation of .2.

8. For most firms, market value leverage is higher than book value leverage.

9. Since interest rates are currently very low, most newly issued corporate bonds are not callable.

10. Suppose asset A and asset B are uncorrelated and both have a Sharpe ratio of .4. Then a portfolio consisting of equal investment in asset A and asset B will also have a Sharpe ratio of .4.

11. Glover Inc. has a WACC of .07 and a tax rate of .30. If it issues a preferred stock with a par value of $50 and an annual dividend of $4, its WACC will increase.

12. Glover Inc. has a WACC of .07 and a tax rate of .30. If it issues a zero coupon bond with a par value of $1000, a maturity of 10 years and a price of $500, its WACC will increase.

13. From 2000 to 2014, the amount of public debt raised by US firms is about 5 times the amount of public equity raised.