Which of the Following Statements Is Most Correct

question 22

Multiple Choice

Which of the following statements is most correct?

• A)More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• B)More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• C)Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• D)More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• E)none of the above

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Definitions:

U.S. GAAP

The codification of how financial transactions and events are to be reported in the financial statements, developed and maintained by the Financial Accounting Standards Board (FASB) for the United States.

Straight-Line Method

A depreciation method where an equal amount of depreciation expense is allocated for each year of the asset's useful life.