When Two Securities Have the Same Expected Cash Flows, the Value

question 23

Multiple Choice

When two securities have the same expected cash flows, the value of the ____ security will be higher than the value of the ____ security.

• A) high-risk; low-risk
• B) low-risk; high-risk
• C) high-risk; high-risk
• D) low-risk; low-risk
• E) none of the above

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Definitions:

Profit-Maximizing Level

The point at which a firm achieves the highest profit possible, where marginal cost equals marginal revenue.

Marginal Cost

The growth in complete costs associated with creating another unit of a good or service.

Total Revenue

The total amount of money received by a company from the sale of its goods or services.

Market Price

The current price at which a good or service can be bought or sold in a marketplace, determined by supply and demand.