Assertion (A): Arbitrage keeps the cost of capital constant despite change in the capital structure.
Reason (R): It ensures compensating inverse change in cost of equity capital with a change in the cost of debt capital.

A) (A) and (R) both are true and (R) is the correct explanation of (A) B) (A) and (R) both are true, but (R) is not the correct explanation of (A) C) (A) is true, but (R) is false D) (A) is not true, but (R) is true

Answer & Solution

Correct Answer: Option A

Let's discuss the solution. Join the discussion

Question posted by Examveda

Community

Join the Discussion

Join the discussion

Login to post a comment or share your explanation.

No comments yet Be the first to discuss this question.

Keep Learning

List-I	List-II
a. Modigliani Miller approach	1. Commercial papers
b. Net operating income approach	2. Working capital management
c. Short-term money market instrument	3. Capital structure
d. Factoring	4. Arbitrage

Assertion (A) Arbitrage keeps the cost of capital constant despite change...

Assertion (A): Arbitrage keeps the cost of capital constant despite change in the capital structure. Reason (R): It ensures compensating inverse change in cost of equity capital with a change in the cost of debt capital.

Join the Discussion

Related Questions on Business Finance

Assertion (A): Arbitrage keeps the cost of capital constant despite change in the capital structure.
Reason (R): It ensures compensating inverse change in cost of equity capital with a change in the cost of debt capital.