Which Component Is More Likely to Be Biased If Book

question 112

Multiple Choice

Which component is more likely to be biased if book values are used in the calculation of WACC rather than market values?

• A)debt.
• B)preferred stock.
• C)common stock.
• D)all categories should be equally biased.

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Definitions:

Periodic Interest Rate

The interest rate applied to a loan or investment over a specific period of time, shorter than a year.

Annuity

A fiscal tool that guarantees fixed periodic payments to a beneficiary, usually as a component of retirement planning.

Payment Interval

The interval at which payments are issued, like monthly, every three months, or once a year.

Periodic Interest Rate

The interest rate charged or paid over a particular period of time, often less than a year, such as monthly or quarterly.