Borrowing Is Like

question 169

Multiple Choice

Borrowing is like:

• A) selling the right to use your money for a time.
• B) buying the right to use someone else's money.
• C) selling the right to use someone else's money.
• D) buying the right to use your money for a time.

---

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.