Which One of the Following Statements Is Correct in Relation

question 79

Multiple Choice

Which one of the following statements is correct in relation to M&M Proposition II, without taxes?

• A) The cost of equity remains constant as the debt-equity ratio increases.
• B) The cost of equity is inversely related to the debt-equity ratio.
• C) The required return on assets is equal to the weighted average cost of capital.
• D) Financial risk determines the return on assets.
• E) Financial risk is unaffected by the debt-equity ratio.

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Definitions:

Secondary Reserve

Secondary Reserve includes assets that are not as liquid as primary reserves but can still be quickly converted into cash.

Board of Governors

The leading body of a federal reserve system, overseeing the policy direction and regulatory functions of the central bank.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, including regulating banks, managing inflation, and influencing interest rates.

Federal Open Market Committee

The branch of the Federal Reserve System responsible for overseeing the nation's open market operations and making key decisions about interest rates and the growth of the United States money supply.