CFA® Level 1: CFA® Level 1 Exam Question

Most Correct Statement in CFA® Level 1 Exam

Prev Question Next Question

Question

Which of the following statements is most correct?

Answers

A. If a company's stock price increases, this increases its cost of equity capital.

B. The before-tax cost of preferred stock may be lower than the before-tax cost of debt, even though preferred stock is riskier than debt.

C. None of these statements are correct.

D. If the cost of equity capital is low enough, it may be cheaper to issue common stock than it is to finance projects with retained earnings.

E. All of these statements are correct.

Show Answer

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D. E.

Corporations, which receive a 70 percent exclusion of dividend income from their taxable income, own most preferred stock. Consequently, the before-tax coupons on preferred stock may be lower than the before-tax coupons on debt, despite the fact that preferred stock is riskier than debt. All the other statements are false.

Prev Question Next Question