A Firm's Goal Is to Maintain a 75% Debt-Equity Ratio

question 35

Multiple Choice

A firm's goal is to maintain a 75% debt-equity ratio.How much equity would be required if the results of a financial planning model indicate that the firm's assets will grow to $4 million?

• A) $1.00 million
• B) $1.71 million
• C) $2.29 million
• D) $3.00 million

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Definitions:

Time Varying Stock Price Volatility

Refers to the fluctuation in stock prices over time, showing variability in the rate of returns under different market conditions.

Changing Expected Returns

The alteration in the anticipated returns on an investment due to changes in market conditions, company performance, or other factors.

Dynamic Hedging

A strategy that involves adjusting the hedge position dynamically as market conditions change, used to manage risk in trading portfolios.

Static Hedging

A financial strategy that involves setting up a position in options or other securities to mitigate risk, without needing to adjust the position frequently.