With Risky Debt and MM's Proposition II,the Expected Return on Assets

question 69

Multiple Choice

With risky debt and MM's Proposition II,the expected return on assets _____ as the debt-equity ratio _____.

• A) increases; increases
• B) decreases; increases
• C) increases; decreases
• D) remains constant; increases

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Definitions:

Bond Premium

The amount by which the market price of a bond exceeds its principal amount or face value.

Amortization Methods

Techniques used to gradually write off the initial cost of an intangible asset over its useful life.

Amortization

The gradual reduction of a debt over a specified period of time through regular payments of principal and interest.

Retire Bonds

The process of paying off bond indebtedness before the maturity date, thereby removing the bonds from circulation.