Simulations Based on the Black-Scholes Model Indicate That, for All $\sigma$

question 9

Multiple Choice

Simulations based on the Black-Scholes model indicate that, for all combinations of leverage (D/V) and firm risk ( $\sigma$ ) , debt risk:

• A)increases as debt maturity increases.
• B)decreases as debt maturity increases.
• C)remains fairly constant as debt maturity increases.