Which of the Following Is an Example of the Way

question 233

Multiple Choice

Which of the following is an example of the way the financial markets in the United States can encourage technological progress more efficiently than other countries?

• A)Even when entrepreneurs cannot secure sufficient funding for projects from banks,venture capital firms may be willing to lend money.
• B)The level of legal protection for investors in the United States is relatively low.
• C)Because the financial market in the United States is so large,the quantity of trading in corporate stocks and bonds makes those investments less liquid.
• D)Banks in the United States are more willing to take on risk because the government guarantees each bank cannot lose more than $100,000 on any given loan that defaults.

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Definitions:

Stock Price

The cost of purchasing a share of a company's stock. The price at which a stock is traded on the market, representing the value investors assign to a company.

MM Model

The Modigliani-Miller theorem, proposing that in a perfect market, the value of a firm is unaffected by how it is financed, whether through debt or equity.

Financial Leverage

The use of borrowed funds with a fixed cost to enhance the potential return on investment.

Bankruptcy Risk

The risk that a company will be unable to meet its financial obligations and thus may have to declare bankruptcy.