Some Individuals Choose to Undertake Risky Prospects While Others Choose

question 3

Multiple Choice

Some individuals choose to undertake risky prospects while others choose safer ones because they have different:

• A) degrees of transitivity.
• B) marginal rates of substitution between risk and reward.
• C) income elasticities.
• D) marginal utilities.

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Definitions:

Debt Financing

A method of raising capital through the sale of bonds, bills, or notes to individual and/or institutional investors, in return for lending the company money.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs a company has.

ROCE

Return on Capital Employed (ROCE) is a financial ratio that measures a company's profitability in terms of the capital it uses.

ROE

Return on Equity; a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how much profit a company generates with the money shareholders have invested.