A Key Assumption of the MM Arbitrage Argument Is

question 45

Multiple Choice

A key assumption of the MM arbitrage argument is:

• A)that business risk is not altered by capital structure.
• B)companies and individuals can borrow at the same interest rate.
• C)financial risk is unaltered by capital structure.
• D)expected return and risk are positively correlated.

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Definitions:

Illusory Correlation

A cognitive bias where a person perceives a relationship between variables (typically people, events, or behaviors) even when no such relationship exists.

Correlation Coefficient

A statistical measure that indicates the extent to which two variables fluctuate together. A positive correlation indicates that as one variable increases, the other does too, and vice versa for a negative correlation.

Correlation Coefficients

Statistical measures that quantify the degree to which two variables are related, indicating the strength and direction of a relationship.

Sexual Harassment

Unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature.