Financial Management - Study Mode

[#636] The expansion of EAR is?
Correct Answer

(A) equivalent annual rate

Explanation

Solution: The expansion of EAR is equivalent annual rate. The Effective Annual Rate (EAR) is the interest rate that is adjusted for compounding over a given period. Simply put, the effective annual interest rate is the rate of interest that an investor can earn (or pay) in a year after taking into consideration compounding.

[#637] The formula for cost of debt is __________.
Correct Answer

(A) I x ( 1 - t)

Explanation

Solution: The formula for cost of debt is I x ( 1 - t).

[#638] Total return is equal to________.
Correct Answer

(A) capital gain and yield

Explanation

Solution: Total return is equal to capital gain and yield. Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested.

[#639] Traditional theorists believe that.
Correct Answer

(A) there exists an optimal capital structure

Explanation

Solution: Traditional theorists believe that there exists an optimal capital structure. An optimal capital structure is the objectively best mix of debt, preferred stock, and common stock that maximizes a company's market value while minimizing its cost of capital.

[#640] Which of the following is / are assumption(s) underlying the Miller and Modigliani analysis?
Correct Answer

(D) All of the above.

Explanation

Solution: Capital markets are perfect, Investors are assumed to be rational and behave accordingly and there is no corporate or personal income tax are the assumptions underlying the Miller and Modigliani analysis.