231. Other things being equal, a rise in the price of a company's shares:
Correct answer: (A)
Reduces the cost of equity capital
232. Other things being equal, according to the base multiplier analysis of money supply determination, a decrease in banks' reserve ratios will lead to:
Correct answer: (E)
A larger multiplier and increase in the money supply
233. Other things being equal, according to the base multiplier analysis of money supply determination, an increase in the public's cash ratio will lead to:
Correct answer: (D)
A smaller multiplier and reduction in money supply
234. Other things being equal, lenders prefer to lend for short periods because:
Correct answer: (B)
The future is uncertain
235. Pension and life insurance funds hold few short-term assets because:
Correct answer: (A)
Their cashflows are predictable
236. Shares in ABC plc. have an â-coefficient of 0.9. The risk free rate of interest is 4 per cent p.a. while the return on a whole market portfolio is 15 per cent. The last dividend paid by the firm was 10p per share and earnings have grown steadily in recent years at 9 per cent p.a. The share price (to the nearest whole p) will be:
Correct answer: (A)
222p
237. Standard and Poor's bond rating agency reduces your firm's bond rating from AA+ to AA. The likely effect on your firm's bonds will be:
Correct answer: (E)
The price will fall
238. Suppose that the Bank of England cuts interest rates by 0.5 per cent. Other things being equal, the change in the price of shares in Q.7 will be:
Correct answer: (C)
11p
239. Suppose that the β-coefficient of ABC shares (in Q6) increases to 1.1. Other things being equal, the new share price would be:
Correct answer: (E)
154p
240. Suppose that three year interest rates rise from 5 per cent to 6 per cent while one year rates remain at 3 per cent. This suggests:
Correct answer: (B)
Short term interest rates are likely to rise in future