Exam 13: Global Cost and Availability of Capital

If all capital markets are fully integrated, securities of comparable expected return and risk should have the same required rate of return in each national market after adjusting for:

Despite the theoretical elegance of this hypothesis, empirical studies have come to the opposite conclusion. Despite the favorable effect of international diversification of cash flows, bankruptcy risk was only about the same for MNEs as for domestic firms. However, MNEs faced higher costs for each of the following EXCEPT:

In general, the geometric mean will be ________ the arithmetic mean for a series of returns.

If a firm's expected returns are more volatile than the expected return for the market portfolio, it will have a beta less than 1.0.

Instruction 13.1: Use the information to answer the following question(s). In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. -Refer to Instruction 13.1. At the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return after converting the stock back into dollars?

If a company fails to accurately predict it's cost of equity, then:

The after-tax cost of debt is found by:

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

Instruction 13.1: Use the information to answer the following question(s). In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. -Refer to Instruction 13.1. How many euros will the U.S. investor acquire with his initial $500,000 investment?

A MNE's marginal cost of capital is constant for considerable ranges in its capital budget, but this statement cannot be made for most domestic firms.

Empirical tests of market efficiency fail to show that most major national markets are reasonably efficient.

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

A global portfolio is an index of all the securities in the world, whereas a world portfolio represents those securities actually available to an investor.

Relatively high costs of capital are more likely to occur in:

Most observers believe that for better or for worse, we have achieved a global market for securities. Discuss the major changes in the international markets of securities: during the 1980s, during the 1990s and the current conditions.

A well-diversified portfolio has about ________ of the risk of the typical individual stock.

Firms acquire debt in either the form of loans from commercial banks, or by selling new common stock.

The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.

A firm whose equity has a beta of 1.0: