Multiple choice

1) One reason for international investment is to reduce: 

A. price-earnings (P/E) ratios. 

B. portfolio risk. 

C. beta risk. 

D. advantages in a foreign country.

2) The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the: 

A. balance of payments quantum theory. 

B. purchasing power parity theory. 

C. arbitrage markets theory. 

D. interest rate parity theory.

3) Your company is considering a project with the following cash flows: Initial outlay = $1,748.80 Cash flows Years 1–6 = $500 Compute the IRR on the project. 

A. 18% 

B. 11% 

C. 24% 

D. 9%

4) The marginal cost of preferred stock is equal to: 

A. the preferred stock dividend divided by the net market price. 

B. (1 - tax rate) times the preferred stock dividend divided by net price. 

C. the preferred stock dividend divided by its par value. 

D. the preferred stock dividend divided by market price