Corporate Finance, 3e (Berk/DeMarzo) Chapter 12 Estimating the Cost of Capital. (All Answers Explained) 2021

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Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. 1) Which firm has the most total risk? A) Eenie B) Meenie C) Miney D) Moe Answer: C Exp... lanation: C) Total risk is measured using volatility and Miney has the highest volatility, hence the most total risk. Diff: 1 Section: 12.1 The Equity Cost of Capital Skill: Analytical 2) Which firm has the least market risk? A) Eenie B) Meenie C) Miney D) Moe Answer: A Explanation: A) Market risk is measured using beta and Eenie has the lowest beta, hence the lowest market risk. Diff: 1 Section: 12.1 The Equity Cost of Capital Skill: Analytical [Show More]

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