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A Hedge That Involves the Use of a Futures Contract

question 1

True/False

A hedge that involves the use of a futures contract on an instrument that is different from the instrument being hedged is called a cross hedge.

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Definitions:

M&M Proposition II

A firm’s cost of equity capital is a positive linear function of its capital structure.

Cost of Capital

The cost of funds used for financing a business, typically considered as the weighted average of the costs of equity and debt financing.

Tax Rate

The amount of tax a person or company must pay, expressed as a percentage of income.

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