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Markus Kantarci
on Nov 07, 2024

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The proposition that the cost of equity is a positive linear function of capital structure is called:

A) The Capital Asset Pricing Model.
B) M&M Proposition I.
C) M&M Proposition II.
D) The Law of One Price.
E) The Efficient Markets Hypothesis.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, used to assess the risk of adding a new asset to a portfolio.

M&M Proposition II

This financial theory, originating from Modigliani and Miller, states that a firm's cost of equity increases as the firm increases its level of debt financing, holding everything else constant.

Capital Structure

The mix of different forms of financial securities used by a firm to finance its operations, typically consisting of debt and equity.

  • Gain insight into M&M propositions and their impact on corporate finance, with an emphasis on capital structure’s role in determining a firm’s worth.
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Mohammed HoqueNov 07, 2024
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