Investments That Are Specific to a Relationship (I

question 38

Multiple Choice

Investments that are specific to a relationship (i.e.of lower value elsewhere) are considered risky and require:

• A)an enforceable contract.
• B)an efficient spot market.
• C)high rates of return.
• D)verbal commitments.

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Definitions:

Flotation Costs

The costs incurred by a company in issuing new securities, including underwriting, legal, and registration fees.

Equity Capital

Funds raised by a company in exchange for shares of ownership in the company.

Component Cost

The rate of return required by investors for each component of a company's capital structure.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government securities like Treasury bonds.