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Q No. 3a.      If a bond sells at a discount, yield to call is more likely to occur.

Explain Why you agree or disagree with the following statements. Be specific in your answer and write only the most relevant explanations (Total Marks 7.5, Each 1.5).

b.     A firm should select the capital structure that is fully unlevered.

c.     Leveraged beta represents fundamental operational risk.

d.     All other things held constant; the future value of an ordinary annuity is always having a higher future value than annuity due.

e.      MM Proposition I with no tax supports the argument that a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.

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