Wolseley manufacturing Co. invests in a group of risky projects, which increases the unsystematic risk of the firm, but does not change the systematic risk of the firm. All else the same, the expected risk premium on its common stock is most likely to: Select one: a. Increase, because the difference between the expected return on the firm's stock and the risk-free rate will widen. b. Increase or decrease, depending on the internal rate of return of the new projects. c. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will widen. d. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will narrow. e. Remain unchanged, because the level of systematic risk is unchanged.

As a financial manager, you found that capital market is very risky and volatile. As we know that the firm’s Beta (β) measures the volatility, or systematic risk, of a security, as it compares to the broader market. The higher the firm’s Beta, the higher the security’s risk, as it compares to the broader market. However, the shareholders of your firm heard about another firm with negative Beta, and they are confused now. The shareholders of your firm would like to know if a firm can have a negative beta.  If yes, what would the expected return on such a firm be? Why? Please explain your reasoning by providing quality argument.

“The Capital Asset Pricing Model [CAPM] assumes that the stock market is dominated by well-diversified investors who are concerned with specific risk. “ is the following statment correct? And explain why.

Is the following sentence true or false? Please explain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             The cost of new equity (re) could possibly be lower than the cost of reinvested earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.