Which of the Following Statements Is False

question 68

Multiple Choice

Which of the following statements is false?

• A) The Law of One Price implies that leverage will affect the total value of the firm under perfect capital market conditions.
• B) In the absence of taxes or other transaction costs, the total cash flow paid out to all of a firm's security holders is equal to the total cash flow generated by the firm's assets.
• C) With perfect capital markets, leverage merely changes the allocation of cash flows between debt and equity, without altering the total cash flows of the firm.
• D) In a perfect capital market, the total value of a firm is equal to the market value of the total cash flows generated by its assets and is not affected by its choice of capital structure.

---

Definitions:

Face Value

The nominal value or dollar value printed on a bond, note, or other financial instrument, indicating the amount due at maturity.

Effective Annual Yield

Effective Annual Yield is the return on an investment for a one-year period, taking into account the effect of compounding interest.

Semi-Annually

Semi-annually refers to an event or action occurring twice a year, often used in the context of interest payments or reporting periods.

Yield To Maturity

The total return anticipated on a bond if the bond is held until its maturity date, factoring in its current price, interest payments, and maturity value.