Question 20.1: *Will upvote for correct and full response*

Use the following table to identify the factors directly affecting expected cash flows and the factors directly affecting the rate of return required by investors.

Determinant	Expected Cash Flows	Required Rate of Return by Investors
Change in industry conditions
Management abilities
Change in the risk premium
Change in economic growth
Change in the risk-free interest rate

Suppose that regulators eliminated certain geographic constraints on banks operations. Which of the following is an accurate description of the effect of relaxed geographic constraints on banks operations on commercial banks expected cash flows?

The cost of banks operations in the regions declines; expected cash flows increase.

The cost of banks operations in the regions increases; expected cash flows decrease.

Commercial banks expand across new regions; expected cash flows increase.

Commercial banks face more regional competition; expected cash flows decrease.

Suppose that the economys money supply increases (but does not cause inflation). Which of the following is an accurate description of the effect of the increase in money supply on the rate of return required by investors?

Interest rates fall, the risk-free interest rate falls, and the rate of return required by investors declines.

Interest rates rise, the risk-free interest rate falls, and the rate of return required by investors increases.

Interest rates rise but the risk-free interest rate falls, and the rate of return required by investors declines.

Interest rates rise, the risk-free interest rate rises, and the rate of return required by investors increases.