Chapters 8-10 inPrinciples of Managerial Finance Question 1 Diversification occurs when stocks with low...
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Accounting
Chapters 8-10 inPrinciples of Managerial Finance
Question 1
Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. What are two types of firm that might exhibit low correlations of returns with the overall stock market? Why the correlations of these firms are expected to be low?
Question 2
In general, the cost of debt capital is lower than the cost of equity capital. For this reason, it might be expected that firms with high debt ratios would have a lower weighted average cost of capital. What are the reasons why this is not the case?
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