When Interest Rates Increase in the United States,capital Flows from Abroad

question 46

Multiple Choice

When interest rates increase in the United States,capital flows from abroad will:

• A)increase
• B)decrease
• C)no change
• D)not be available anymore

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Definitions:

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.

Required Rate of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

M&M Proposition II

Part of the Modigliani-Miller theorem stating that a company's cost of equity increases as its level of debt increases, due to the higher risk of default.

Cost of Equity

The return that investors expect for investing in a company's equity, reflecting the risk of owning equity in the company.