Which of the Following Is True Concerning the Rate of Return

question 329

Multiple Choice

Which of the following is true concerning the rate of return earned on shares of a levered firm in terms of the possible range of earnings? There are no taxes.

• A) The returns do not differ from those of an unlevered firm.
• B) The returns are greater than for an unlevered firm on the upside and equal on the downside.
• C) The returns are the same as for an unlevered firm on the upside and lower on the downside.
• D) The returns are greater than for an unlevered firm on the upside and lower on the downside.
• E) The returns are the same as for an unlevered firm on the upside and greater on the downside.

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Definitions:

Directorships

Positions or titles held by members of a board of directors responsible for overseeing the management and strategic direction of an organization.

Compensation

Payment or benefit given to someone, such as an employee or a victim, in exchange for their services or as reparation for harm.

Corporate Governance

The system of rules, practices, and processes by which a company is directed and controlled.

Shelf Registrations

A process that allows issuers to register a new issue with the SEC that can be sold at any time within a two-year period.