The Law of Conservation of Value Implies That

question 44

Multiple Choice

The law of conservation of value implies that
I.the mix of senior and subordinated debt does not affect the value of the firm;
II.the mix of convertible and nonconvertible debt does not affect the value of the firm;
III.the mix of common stock and preferred stock does not affect the value of the firm

• A)I only
• B)II only
• C)III only
• D)I, II, and III

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Definitions:

Income Effect

The impact on consumer's choice arising from a change in their income, influencing their purchasing power.

Giffen Good

A type of inferior good for which demand increases as the price increases, violating the basic law of demand.

Inferior Good

A type of good whose demand decreases when consumer income rises, and vice versa, often contrasted with normal goods whose demand increases with rising income.

Normal Good

A good for which demand increases when consumer income rises, and decreases when consumer income falls.