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

---

Definitions:

Similar Events

Incidents or occurrences that share common characteristics or outcomes, often analyzed in financial contexts to predict future trends.

Public Company Accounting Oversight Board

An independent oversight body established by Congress to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

Auditing Standards

Rules and guidelines set by governing bodies that dictate the auditing process, ensuring consistency, and reliability in financial reporting.

Sarbanes-Oxley Act

A U.S. federal law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures, including those related to financial statements and corporate governance.