A Company That Increases Its Liquidity by Holding More Cash

A company 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) likely to achieve a lower return on equity because of the smaller rates of return earned on cash and marketable securities compared to the firm's other investments.
C) going to maximize firm value because risk is decreased.
D) going to have to sell common stock to raise the cash to become more liquid.

Correct Answer:

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