Which of the Following Statements Is FALSE

question 28

Multiple Choice

Which of the following statements is FALSE?

• A)Modigliani and Miller's conclusion verified the common view,which stated that even with perfect capital markets,leverage would affect a firm's value.
• B)We can evaluate the relationship between risk and return more formally by computing the sensitivity of each security's return to the systematic risk of the economy.
• C)Investors in levered equity require a higher expected return to compensate for its increased risk.
• D)Leverage increases the risk of equity even when there is no risk that the firm will default.

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Definitions:

Contingency Table

A table used in statistics to summarize the relationship between several categorical variables.

Frequency of Occurrence

The number of times an event or a value appears in a given dataset or period of time.

Large-sample Z Tests

Statistical tests used to determine if there are differences between the means of two samples when the sample size is large.

Chi-square Statistic

A statistic that measures the difference between observed counts and counts expected under a specific hypothesis, used in tests of independence and goodness-of-fit.