Investors Typically Accept a Lower Risk-Adjusted Rate of Return on Debt

question 51

Multiple Choice

Investors typically accept a lower risk-adjusted rate of return on debt capital than on equity capital because:

• A) debt is typically less risky because fixed claims bear less residual risk than equity claims.
• B) equity bears less residual risk than debt.
• C) equity capital costs are tax deductible.
• D) the yield to maturity on equity is inversely related to its market value.

---

Definitions:

Monozygotic Twins

Identical twins that result from one fertilized egg splitting into two, sharing exactly the same genetic material.

Genetically Identical

Refers to organisms, cells, or molecules that have the exact same DNA sequence.

Teratogen

An agent or factor that causes malformation of an embryo or fetus.

Intellectual Disability

A condition characterized by significant limitations in both intellectual functioning and in adaptive behavior, which covers many everyday social and practical skills.