A Very Large Firm Has a Debt Beta of Zero

question 23

Multiple Choice

A very large firm has a debt beta of zero. If the cost of equity is 11%,and the risk-free rate is 5%,the cost of debt is:

• A) 5%.
• B) 6%.
• C) 11%.
• D) 15%.
• E) It is impossible to tell without the expected market return.

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Definitions:

Trial

A legal process where a case is examined in a court to determine whether the accused is guilty or innocent.

Arbitrator's Decision

Represents the final and binding resolution made by an arbitrator in a dispute, which the parties have agreed to accept.

Binding

Having legal force; a binding agreement is one that is legally enforceable by the courts.

Appealed

The process of seeking a higher court's review of a lower court's decision in hope of overturning or modifying the judgement.