One Reason That the Required Rate of Return on Shares

question 2

Multiple Choice

One reason that the required rate of return on shares is generally more than on interest-yielding securities is because:

• A)borrowers may default on payments.
• B)the returns on shares are higher than on interest-yielding securities.
• C)debtholders rank ahead of shareholders in case of default.
• D)shareholders rank ahead of debtholders in case of default.

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Definitions:

Left Side

In accounting, this refers to the debit side of a double-entry bookkeeping system, indicating increases in assets or expenses and decreases in liabilities or equity.

Debit Side

The left side of an accounting ledger where increases in assets and expenses or decreases in liabilities and equity are recorded.

Normal Balance

The side of an account (debit or credit) where increases in the account are recorded, reflecting the account's usual positive balance.

Expense

Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.