Question: A firm that increases its liquidity by holding more cash and marketable securities is:
[A] Likely to achieve a higher return on equity because of higher interest income.
[B] Going to maximize firm value because risk is reduced.
[C] Likely to achieve a lower return on equity because of the smaller rates of return earned on cash and a marketable security compared to company’s other investments.
[D] Going to have to sell common stock to raise the cash to become more liquid.