Which of the Following Statements Is False

question 7

Multiple Choice

Which of the following statements is false?

• A) The unlevered beta measures the market risk of the firm's business activities, ignoring any additional risk due to leverage.
• B) If a firm holds $1 in cash and has $1 of risk-free debt, then the interest earned on the cash will equal the interest paid on the debt. The cash flows from each source cancel each other, just as if the firm held no cash and no debt.
• C) The unlevered beta measures the market risk of the firm without leverage, which is equivalent to the beta of the firm's assets.
• D) When a firm changes its capital structure without changing its investments, its levered beta will remain unaltered, however, its asset beta will change to reflect the effect of the capital structure change on its risk.

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Definitions:

Insurance

A financial product that provides protection against potential financial losses or liabilities in exchange for a premium payment.

Expected Wealth

The anticipated sum of money an individual or entity predicts to hold in the future, based on current assets, income sources, and investment strategies.

Insurance Premium

The amount of money an individual or business must pay for an insurance policy, typically charged monthly or annually.

Safe Deposit Box

A safe deposit box is a secure container, usually held within a bank, where individuals can store valuable items such as documents, jewelry, and securities.