Question

True or False? ____ The cost of equity reflects the return required for investors to own...

True or False?

____ The cost of equity reflects the return required for investors to own the stock.

____ Having higher correlation between stocks in a diversified portfolio reduces the average return.

____ An investment that has an NPV of 1 should be accepted because it is positive.

____ Adding dividends to net income makes it net cash flow.

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Answer #1

True or False?

1) The cost of equity reflects the return required for investors to own the stock.

True

Explanation:- The cost of equity is the opportunity cost of investing in the stock.

2) Having a higher correlation between stocks in a diversified portfolio reduces the average return.

False

Correlation between do not impact the return of the portfolio but if affects the risk of the portfolio

3) An investment that has an NPV of 1 should be accepted because it is positive.

False

Explanation: It is true that the project with positive NPV should be accepted but NPV of one is negligible and not worth taking the risk

4) Adding dividends to net income makes it net cash flow.

False

Explanation: Net income means income before reducing dividend so adding dividend to it will not make net cash flow

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