A Decrease in Interest Rates Means That the Discount Rate

question 24

Multiple Choice

A decrease in interest rates means that the discount rate on cash flows is:

• A)decreased and thus the market value of an FI's assets and liabilities decreases.
• B)increased and thus the market value of an FI's assets and liabilities decreases.
• C)increased and thus the market value of an FI's assets and liabilities increases.
• D)decreased and thus the market value of an FI's assets and liabilities increases.

Learn the principles of the residual dividend theory.

Identify the influence of dividend preferences on investor choices between dividends and capital gains.

Recognize the limitations and flexibility in dividend payment policies.

Acknowledge the role of indentures and covenants in limiting dividend payments.

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Definitions:

Efficiency

The optimal use of resources to achieve the best possible outcome or output with minimal waste.

Equity

Equity refers to fairness or justice in the way people are treated and involves ensuring equal opportunities and rights for all individuals.

Benefits Principle

A theory in taxation where taxes are apportioned according to the benefits received by taxpayers; those who benefit more from government services, pay more taxes.

Federal Government

The national government of a federal country, which holds the authority over matters that affect the country as a whole.