Assume That the Risk-Free Interest Rate in the United States

question 9

Multiple Choice

Assume that the risk-free interest rate in the United States is the same as that in Country M. Assume that the government of Country M is more likely to rescue local firms that experience financial problems. Other things being equal, Country M's firms are likely to use a ____ degree of financial leverage than U.S. firms. If a firm based in Country M has the same degree of financial leverage and the same operating characteristics as a U.S. firm, its cost of capital will likely be ____ than that of the U.S. firm.​

• A) ​higher; higher
• B) ​higher; lower
• C) ​lower; lower
• D) ​lower; higher

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Definitions:

PCP

Synthesized drug now used as an animal tranquilizer that can cause stimulant, depressant, narcotic, or hallucinogenic effects.

Hidden Observer

A concept in hypnotism referring to a part of the mind that remains aware and observant during hypnosis, despite any suggestions of not being conscious of ongoing activities.

Ernest Hilgard

An influential psychologist known for his research on hypnosis and the theory of the "hidden observer" which suggests a part of the mind is always aware and observing what happens, even during hypnosis.

Tetrahydrocannabinol

The main psychoactive component of cannabis, responsible for the plant's intoxicating effects.