Which One of the Following States That the Value of a Company

question 5

Multiple Choice

Which one of the following states that the value of a company is unrelated to the company's capital structure?

• A) Homemade leverage
• B) M&M Proposition I, no tax
• C) M&M Proposition II, no tax
• D) Pecking-order theory
• E) Static theory of capital structure

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Definitions:

Single Factor Model

A financial model that describes an asset's returns as dependent on a single market index or factor.

Fama-French Three Factor Model

The Fama-French Three Factor Model expands on the Capital Asset Pricing Model by incorporating three factors: market risk, size risk, and value risk, to explain stock returns.

Risk Premiums

The extra return expected by investors for holding a risky asset compared to a risk-free asset, as compensation for the additional risk.

Expected Return

The anticipated profit or loss from an investment, taking into account the potential outcomes and their probabilities.