2 SECTION I: YOU CAN’T HANDLE THE TRUTH!!! OR MAYBE YOU CAN Questions 1-2 (20 points total) True or False, Explain: (20 points total –10 points each question) Use the following information to determine whether the statements are true or false. If the statement is false provide a BRIEF explanation as to why it is false (BRIEF means AT MOST a few sentences). For a statement to be true, it must always be true. Thus, if the statement is true, there is no need for further explanation. Show work if necessary. 1.Every one of the statements A-D below is TRUE (to be clear: if you answer false, explain which statements are NOT true and briefly WHY. To answer true, all the statements below must be true)A.For any given stream of positive cash flows, future value will increase as interest rates increase. B.For a fixed interest rate and a given stream of positive cash flows, when the frequency of compounding per year increases, present value decreases. C.Assuming you invest $100 at 12% EAR, you will have roughly $769 in 18 years. D.If two streams of positive cash flows have the same payment, number of payments, the same positive discount rate, and both start at the same time, the present value of an annuity due is greater than the present value of an ordinary annuity. 2. If the beta of asset A is 0.80, the beta of asset B is 1.20, and you form an equal-weighted portfolio of A, B, the risk-free security, and the market portfolio, the beta of the combined portfolio must be 0.67. SECTION II: THE FIRST RULE OF FIN CLUB IS YOU DON’T ADD ACROSS TIME!Questions 3-6 (45 points total) Tyler Durden was President and CEO of The Paper Street Soap Company which produced and sold high quality soaps to luxury department stores. Tyler had been losing sleep recently as he thought about the future for himself and his company. There was a possibility of expanding his operation to other cities as well as branching out into other activities.