The Tendency of the Rate Earned on Stockholders' Equity to Vary

question 8

Multiple Choice

The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred as:

• A)leverage.
• B)solvency.
• C)yield.
• D)quick assets.

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Definitions:

Premium

The amount paid for an insurance policy or the amount by which a bond or stock sells above its par value.

Straight-Line Amortization

A method of calculating equal amortization payments over an asset's useful life or a loan's term.

Interest Expense

The cost incurred by an entity for borrowed funds; this expense is reported on the income statement during the period in which the borrowing occurs.

Straight-Line Method

A method of calculating depreciation of an asset by evenly spreading its cost over the expected useful life.