Question One (1)
1 A). Why is the T-bill’s return independent of the state of the economy?
1 B) Do T-bills promise a completely risk-free return? Explain.
Question Two (2)
2A). What is a constant growth stock? How are constant growth stocks valued?
2B) What sources of capital should be included when you estimate a firm’s WACC?
2C). Why is the yield on preferred stock lower than debt?
Question Three (3)
3A). What is the difference between independent and mutually exclusive projects? Between projects with normal and nonnormal cash flows?
Question Four (4) 4A). What is real option analysis? 4B). What are some examples of projects with real options?
