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:

Stress Hormones

Chemical substances, such as cortisol and adrenaline, released into the body in response to perceived threats, preparing the body for fight or flight reactions.

Frontal Lobe Functions

Activities and processes attributed to the frontal lobes of the brain, including reasoning, planning, movement, emotions, and problem-solving.

Antisocial Personality Disorder

A behavioral condition identified by long-standing tendencies to manipulate, exploit, or breach the rights of other people.

Frontal Lobe Functions

The activities and processes managed by the frontal lobe of the brain, including decision making, problem solving, control of purposeful behaviors, consciousness, and emotions.