Which of the Following Statements Is Incorrect

question 133

Multiple Choice

Which of the following statements is incorrect?

• A) Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.
• B) Accruals are "free" in the sense that no explicit interest is paid on these funds.
• C) A conservative approach to working capital will result in all permanent assets being financed using long-term securities.
• D) The risk to the firm of borrowing with short-term credit is usually greater than with long-term debt. Added risk can stem from greater variability of interest costs on short-term debt.
• E) Bank loans have a lower interest rate than commercial paper.

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Definitions:

Beta

An indicator of how much a stock's price movement deviates from the general market, where a beta greater than 1 signifies more volatility than the overall market.

Required Return

The minimum rate of return on an investment that investors expect or require, taking into account the risk level of the investment.

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, typically represented by the yield on government bonds.

Real Risk-Free Rate

The rate of return on a risk-free investment, such as government treasury bills, adjusted for inflation, representing the true earning power of the investment.