The Main Disadvantage of Financial Leverage Is That It

question 11

Multiple Choice

The main disadvantage of financial leverage is that it:

• A)increases the taxes of firms that use it.
• B)requires owners to invest even more of their own money.
• C)reduces the financial return to stockholders when times are bad.
• D)requires firms that use it to make higher dividend payments.

Recognize the impact of diversification on risk reduction.

Distinguish between systematic and unsystematic risks and understand the role of beta in measuring systemic risk.

Conceptualize the importance of correlation coefficients in portfolio diversification and risk management.

Understand the significance of excess returns and their calculation.

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Definitions:

Appetite Change

A noticeable alteration in the desire to eat, which can include both an increase or decrease in hunger levels.

Isotretinoin

A medication primarily used to treat severe acne, known for its potential to cause serious side effects and hence, subject to strict prescription guidelines.

Acne

A skin condition characterized by the presence of pimples, blackheads, and possibly cysts, often occurring on the face, neck, chest, back, and shoulders.

Antibacterial Soap

Soap formulated with chemical agents intended to kill or inhibit the growth of bacteria on the skin.