Question

1. ( T or F )      If other things are the same, the higher the earnings growth rate, the higher the stock

                         price.

2. ( T or F )       Combining assets with negatively related returns can reduce risk more effectively than combining assets with positively correlated returns.

3. ( T or F )     In general, as the discount rate rises, the IRR of the project falls.

4. ( T or F )      If two bonds have the same price, their discount rates are the same.

5. ( T or F )      If investors become less risk averse in the market, the SML (security market line)

                        will become steeper.

Answer 1

1. This given statement is a TRUE statement as when the earnings growth rate are higher, the share prices are eventually higher.

It is a common phenomenon in the stock market that there is a preference for high growth and high earning companies so, a company with high earning growth will be preferred.there would be a large number of investors buying into that share because its earnings has gone substantially up, and if the earning of a share goes up the price to earning ratio also has to remain constant, and to Price to Earning to remain constant, the market price has to go up.

So the given statement is a TRUE statement.