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Standard deviations for Investment A and Investment B are 19% and 28% respectively. This indicates that:?

  • Question No 1: Standard deviations for Investment A and Investment B are 19% and 28% respectively. This indicates that: Investment A is more volatile than Investment B Investment A is equally volatile to Investment B Investment B is less volatile than Investment A Investment B is more volatile than Investment A Question No: 2 Which of the following statement is INCORRECT regarding financial leverage ? Financial leverage can dramatically alter the payoffs to the shareholders. Financial leverage refers to the extent to which a firm relies on the debt. Financial leverage must affect the overall cost of capital in any condition. Financial leverage may not affect the overall cost of capital.

  • Answer:

    Q #1: Investment B is more volatile than Investment A. Q #2: Financial leverage MUST affect the overall cost of capital in ANY condition.

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