Increased Liquidity During the Past Two Decades Has Reduced Interest

question 52

Multiple Choice

Increased liquidity during the past two decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates) ?

• A)U.S. government bonds
• B)Bonds issued by large corporations
• C)Business loans
• D)Bonds issued by state governments

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its equity and while maintaining its existing debt-equity ratio.

Debt-Equity Ratio

A calculation to determine a business's leverage by dividing its liabilities by the equity of its stockholders.

External Equity Financing

This term refers to the process through which a company raises capital by selling its shares to external investors, outside the existing shareholders or company insiders.

Internal Growth Rate

The maximum growth rate a firm can achieve without external financing, based on reinvestment of its own earnings.