1. The innovation of mortgage backed securities
A) Allowed the risk of a mortgage loan to be transferred from a lender to an investor
B) allowed investors the opportunity to invest in a pool of mortgages
C) Provided liquidity for the mortgage market, as banks had more money to lend
D) Converted illiquid loans (mortgages) into highly liquid securities (the mortgage backed securities)
E) all of the above
2. If a firm reduces its leverage…
A. … its WACC will go down.
B. … its cost of capital will go down.
C. … its cost of debt will go up.
D. … its cost of equity will go down.
E. … its cost of equity will not change.