Consider the Following Equation for the Question(s) Below

question 77

Multiple Choice

Consider the following equation for the question(s) below.

-Which of the following statements is FALSE assuming a perfect market?

• A) The unlevered beta measures the market risk of a 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 a firm without leverage, which is equivalent to the beta of the firm's assets.
• D) As the amount of debt decreases, the debt becomes riskier because there is a chance the firm will default.

---

Definitions:

Zone of Indifference

The range within which individuals are indifferent to making a choice between different options because the differences are perceived as minimal.

Authoritative Requests

Demands or commands given by a person in a position of power, which are expected to be followed without question.

Region of Inattention

Areas or aspects that are ignored or overlooked within a certain context, especially in cognitive psychology or information processing.

Coercive Power

The ability to control others through the threat of punishment or the imposition of unpleasant conditions.