If Investors' Aversion to Risk Rose, Causing the Slope of the SML

question 85

True/False

If investors' aversion to risk rose, causing the slope of the SML to increase, this would have a greater impact on the required rate of return on equity, rs, than on the interest rate on long-term debt, rd, for most firms. Other things held constant, this would lead to an increase in the use of debt and a decrease in the use of equity. However, other things would not stay constant if firms used a lot more debt, as that would increase the riskiness of both debt and equity and thus limit the shift toward debt.

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Definitions:

Virtual Interview

An interview conducted using digital tools and platforms, where participants interact remotely via video or audio connections.

Follow-up Messages

Communications sent to maintain contact or provide additional information after an initial message or meeting.

Overbearing

A behavior characterized by excessive assertion of authority or dominance, often leading to discomfort or resentment in others.

Phone Interview

A prearranged meeting or assessment carried out over the phone, generally used in the preliminary stages of a job application process.