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.

---

Definitions:

Department of Homeland Security

A cabinet department of the U.S. federal government responsible for public security, formed in response to the September 11 attacks.

Cold War

A period of political and military tension after World War II between powers in the Western Bloc (led by the United States) and powers in the Eastern Bloc (led by the Soviet Union), without direct large-scale fighting.

World War II

A global conflict lasting from 1939 to 1945, involving most of the world's nations, and resulting in significant geopolitical changes.

Constitutional Treaty Power

Constitutional Treaty Power refers to the authority granted to the President of the United States to make treaties with foreign nations, subject to the approval of the Senate.