Which of the Following Statements Is Most Correct

question 22

Multiple Choice

Which of the following statements is most correct?

• A)firms with relatively low debt ratios have higher expected returns when the business is good.
• B)firms with relatively low debt ratios are exposed to risk of loss when the business is poor.
• C)firms with relatively high debt ratios have higher expected returns when the business is bad.
• D)firms with relatively high debt ratios have higher expected returns when the business is good.
• E)none of the above.

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Definitions:

Risk-free Asset

An investment with a guaranteed return and no risk of financial loss.