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Question 1 [1 mark] Consider a world where the assumptions of the Modigliani Miller Theorem hold and where investors use the Capital Asset Pricing Model
Question 1 [1 mark] Consider a world where the assumptions of the Modigliani Miller Theorem hold and where investors use the Capital Asset Pricing Model to price securities. In this world we know that leverage has no impact on firm value. Now, researchers at the Wharton Business School discover that the true pricing model is one with three factors. If everyone uses this new model to price securities, firms may find that changes in leverage will affect firm value. True or False. (a) True (b) False
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