Steele and Aronson (1995) Conducted a Study Examining Black and White

question 15

Multiple Choice

Steele and Aronson (1995) conducted a study examining black and white university students' performance on a difficult test. They found that:

• A) blacks performed better than whites when they were told the test was diagnostic of their ability.
• B) blacks performed worse than whites when they were told the test was diagnostic of their ability.
• C) blacks and whites performed equally well.
• D) blacks performed better than whites when they were told the test was very easy.

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Definitions:

Financial Leverage

The use of borrowed money (debt) to amplify the potential returns from an investment, increasing risk and potentially reward.

Financial Distress

A condition in which a company cannot generate the revenues or income necessary to meet its financial obligations, which may lead to bankruptcy.

MM Propositions

The Modigliani-Miller propositions, which are foundational theorems in corporate finance, asserting that under certain conditions, the value of a firm is unaffected by its capital structure.

Optimal Capital Structure

The best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital.