Which of the Following Are Possible Explanations for the Term

question 35

Multiple Choice

Which of the following are possible explanations for the term structure of interest rates?

• A) The expectations theory
• B) The liquidity preference theory
• C) Modern portfolio theory
• D) The expectations theory and the liquidity preference theory

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Definitions:

Cost of Capital

The Cost of Capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view, the required rate of return on a portfolio company's existing securities.

Specific Financing

Financing that is intended for a particular purpose or project, with clear specifications and usually backed by specific collateral.

After-Tax Cost

The expense of any financial obligation or investment after accounting for the effects of taxes.

Project Evaluation

The process of determining the potential successes or failures of a proposed project based on various criteria.