The M&M Proof of Capital Structure Irrelevance Relies On

question 59

Multiple Choice

The M&M proof of capital structure irrelevance relies on:

• A)arbitrage arguments
• B)personal and corporate leverage are perfect substitutes
• C)both of the above
• D)neither of the above

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Definitions:

Deposit Expansion Multiplier

The ratio that describes the potential increase in money supply through the banking system via fractional reserve banking.

Government Bonds

Debt securities issued by a government to support government spending and obligations, typically offering a fixed rate of return over a specified period.

Market Rate

The market rate refers to the prevailing interest rate available in the marketplace for financial products or the current price of goods and services in a competitive market.

Vault Cash

Physical currency that banks and other depository institutions hold in their vaults, used to meet customer withdrawals and other immediate needs.