If a Firm Adopts a Large Proportion of Above-Average-Risk Investment

question 56

Multiple Choice

If a firm adopts a large proportion of above-average-risk investment projects that are not offset by below-average-risk investment projects, ____.

• A) its cost of capital will rise
• B) the average risk premium for the firm will decline
• C) the risk-free rate will increase as more risk is added
• D) its cost of capital will fall

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Definitions:

Domestication

The process by which humans breed and cultivate plants and animals for personal use, altering their characteristics over generations to suit human needs.

Agricultural Society

An agricultural society is a community or nation whose economy is heavily based on agriculture and farming practices.

Domesticated Animals

Animals that have been bred and kept by humans for work, food, or as pets, showing traits that differ from their wild ancestors.

Accumulating Material Goods

The process of systematically gathering and holding onto physical items or products, often beyond immediate needs or personal enjoyment.