The Financial Ratio That Reflects the Ability to Meet Long-Term

question 9

Multiple Choice

The financial ratio that reflects the ability to meet long-term financial obligations is the _____ ratio.

• A) return
• B) operating
• C) liquidity
• D) debt
• E) coverage

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Definitions:

Cost of Capital

A metric used to determine the minimum expected return needed on an investment in order to be deemed a worthwhile expenditure, reflecting the investor's required return.

Systematic Risk

The inherent risk associated with the entire market or market segment, which cannot be eliminated by diversification.

SML Approach

The SML (Security Market Line) Approach is a relationship depicted in a graph that shows the expected return of a security against its risk, represented by beta.

Coupon Rate

The annual interest rate paid by a bond relative to its face or par value, which the bondholder receives.