Which One of the Following Statements Is Correct

question 10

Multiple Choice

Which one of the following statements is correct?

• A)The financial market generally reacts the same to a new issue of equity as it does to a new issue of debt as long as the issuer is the same.
• B)Issuing new equity shares is always viewed by the market as a positive event.
• C)Informed managers tend to issue new securities when the existing securities are underpriced.
• D)A decline in the price of existing stock when a new issue is released is a direct cost of selling securities.
• E)A firm's existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.

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Definitions:

T-bill

Short-term government securities that mature in a year or less, offering investors a safe and liquid means of investment.

Capital Allocation Line

A line on a graph that represents the risk-return trade-off of investments, showing the rates of return for efficient portfolios depending on the risk-free rate and the market risk.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points from their mean, used in finance to gauge the volatility of investment returns.

Expected Rate

The anticipated return on an investment, taking into account various factors like market trends, risk level, and past performance.