Which of the Following Statements Is False

question 66

Multiple Choice

Which of the following statements is false?

• A) Canadian T-Bill securities are widely regarded to be risk-free because there is virtually no chance the government will default on these bonds.
• B) In general, if the interest rate is r and the tax rate is τ, then for each $1 invested you will earn interest equal to r and owe taxes of τ × r on the interest.
• C) Investors may receive less than the stated interest rate if the borrowing company has financial difficulties and is unable to fully repay the loan.
• D) Taxes reduce the amount of interest the investor can keep, and we refer to this reduced amount as the tax effective interest rate.

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Definitions:

Independent Director Control

A theory of corporate control that states that the best way to make certain that corporate decisions are made in the best interests of the corporation is to make sure that the decision makers themselves are not affected by the decisions.

Corporate Democracy

The system or practices within a corporation that allow for the participation and voting rights of shareholders in company decision-making processes.

Business Judgment Rule

A legal principle that protects the decisions of corporate directors and officers, made in good faith and with reasonable diligence, from being second-guessed by courts.

Fairness Rule

The rule that requires managers to be fair to the corporation when they personally benefit from their business decisions.