If management substitutes new common stock for retained earnings, that tends to
reduce the cost of capital.
The managers of mutual funds have tended to outperform the market consistently.
When the general public uses money in checking accounts to purchase stock issued by
corporations, the required reserves of banks are reduced.
As a firm increases its use of debt, it becomes more financially leveraged and riskier.
The efficient market hypothesis suggests that investors should not expect to outperform
the market.
The use of long-term sources of finance instead of short-term sources tends to decrease
operating income.
If a firm issues long-term debt and uses the proceeds to retire short-term debt, the
current ratio is unaffected.
A futures contract to make delivery is a short position.
Since cash is an asset, it is a source of finance.
If a convertible bond is not called nor converted, the firm must ultimately retire it.
The return on a portfolio considers both the individual asset’s return and its weight in
the portfolio.
One type of risk adjustment alters the firm’s cost of capital for the probability of
occurrence.
The larger the standard deviation of an investment’s return, the larger is the investment’s
risk.
If interest rates increase, the short sellers of Treasury bond futures profit.
The calculation of a rate of return assumes dividend income is reinvested at the current
dividend yield.
In the decision to extend credit, the analysis of bad debt expense applies only to
existing customers.
Only large commercial banks are subject to the regulation of the Federal Reserve.
The user of a commodity such as wheat hedges against a price increase by entering a
contract to deliver wheat.