Which of the Following Statements Is False

question 72

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:

Person's Judgment

The capacity or ability of an individual to make considered decisions or come to sensible conclusions.

Bound in Contract

A legal state or condition wherein parties are legally obligated to fulfill the terms and conditions stipulated in a contract.

Non Est Factum

A legal defense in contract law where a person claims that a signature on a contract was signed by mistake, without understanding its nature.

Functionally Illiterate

Describes an individual whose reading and writing skills are inadequate to manage daily living and employment tasks that require literacy.