Problem 6: Miscellaneous topics including IPO filing, IPO activity and underpricing, risk-return relation, capital budgeting, and capital structure (19 points) d) Charline, a colleague of yours, argues that issuing more debt and repurchasing equity has two negative effects on the firm’s equity holders. First, it increases the risk of equity holders’ shares and equity holders cannot offset this increase in risk. Second, the overall payout to security holders will decrease, which will reduce overall firm value. Assume that (1) you are in a world where the corporate tax rate is larger than zero, that (2) interest payments are tax deductible, and that (3) the firm’s pre-tax cash flow is not affected by how it is financed. Please discuss Charline’s two arguments critically. Do you agree with her? Explain your answer. (4 points)

e) Multiple-choice question: This question is about the security market line (SML). Assume that the intercept of the SML is 0.03. The slope of the SML is 0.07. Please select all correct statements. (3 points)

i) Multiple-choice question: Delta Corp. recently had its initial public offering. The offer price of Delta Corp.’s shares was $20 per share. At the end of the first trading day, Delta Corp.’s shares traded at a price of $25 per share. Delta Corp. issued 2 million shares in the IPO. Please select all correct statements. (3 points)  

Problem 1: Single- and Multiple-Choice Questions (22 points) This problem comprises 9 single- and multiple-choice questions. The number of points that you can earn in a question range from one to three points and is always shown at the end of the question. In single-choice questions, you get the full number of points if you select the correct answer. Otherwise, you get zero points. In multiple-choice questions, you get one point for each correct answer and minus one point for each incorrect answer. You cannot earn less than zero points in a question. If you do not answer a question, you will get zero points for the question. a) Multiple-choice question: Assume that there is a convertible bond with a face value of $1,000. It can be converted into 5 shares. The current share price is $175. What is the absolute and the relative conversion premium? Are investors willing to convert their bonds into shares in this situation? (3 points)

Problem 6: Miscellaneous topics including IPO filing, IPO activity and underpricing, risk-return relation, capital budgeting, and capital structure (19 points) b) The attached figure shows the average first-day return and the number of IPOs in Canada for each year from 1980 to 2024 (IPOs-Canada.pdf). The average first-day return is indicated by the green line (right y-axis), while the number of IPOs is displayed by the blue bars (left y-axis). How did the number of firms going public in Canada evolve over time? How did the underpricing evolve over time? Compared to other countries, are Canadian IPOs, on average, fairly priced? (4 points)

Problem 5 – Excel: Capital Budgeting Methods (11 points) Download the attached Excel file “Problem_5_Template.xslx” (Problem_5_Template-1.xlsx) and answer the questions stated in the Excel file. When you have completed your solutions, please upload the Excel file with your solutions to your e-exam using the name “StudentID_Problem_5.xslx” (e.g., “123456789_Problem_5.xlsx”). When you want to upload an updated version of your solutions, please add a version tag (e.g., “_v2”) at the end of the file name (e.g., “123456789_Problem_5_v2.xlsx”). This problem consists of three parts. Parts a), b), c), and d) yield 2, 3, 3, and 3 points, respectively.

period and frequency are ___________ related. 

Is wavelength determined by the source or medium?

c) Multiple-choice question: Below there are statements about credit ratings. Please select all correct statements. (2 points)

Which of the following waves has the longest period?