Which of the Following Statement Completions Is Correct? If the Yield

question 75

Multiple Choice

Which of the following statement completions is correct? If the yield curve is upward sloping, then a firm's marketable securities portfolio, assumed to be held for liquidity purposes, should be

• A)Weighted toward long-term securities because they pay higher rates.
• B)Weighted toward short-term securities because they pay higher rates.
• C)Weighted toward U.S.Treasury securities to avoid interest rate risk.
• D)Weighted toward short-term securities to avoid interest rate risk.
• E)Balanced between long- and short-term securities to minimize the effects of either an upward or a downward trend in interest rates.

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Definitions:

Cost of Equity

The return a company theoretically pays to its equity investors to compensate them for the risk they undertake by investing in the company's stock.

Required Rate of Return

The minimum annual percentage earned by an investment that will entice individuals or companies to put money into a particular project or investment.

Negative NPV

A situation where the present value of future cash flows of an investment is less than the initial investment cost, indicating a potential loss.

Project Risk

The potential for loss or failure associated with an investment or business initiative.