A Bubble in the Housing Market Occurs When, After Watching

question 77

Multiple Choice

A bubble in the housing market occurs when, after watching housing prices rise for several years, house buyers come to believe that:

• A) housing prices will eventually fall.
• B) housing prices will continue to rise.
• C) the housing market could be a risky investment.
• D) the price increases cannot be explained, and uncertainly drives them out of the market.

Understand the relationship between the returns required by investors and the firm's cost of capital components.

Recognize the significance of market values in calculating the cost of capital over book values.

Know the concept of target capital structure and its relevance to the WACC.

Learn how the marginal cost of capital (MCC) and investment opportunity schedule (IOS) guide capital budgeting decisions.

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