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.

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Definitions:

Psychologically Addicted

describes a condition where an individual feels a compelling psychological, but not physical, need to continue using a substance or engaging in behavior.

Nutritional Deficiencies

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Genetic Factors

Hereditary elements in an organism's DNA that contribute to its physical and behavioral traits, including susceptibility to certain diseases or conditions.

Social Drinker

An individual who consumes alcoholic beverages in moderation and typically in social settings without dependency.