Which of the Following Statements Is Correct

question 85

Multiple Choice

Which of the following statements is correct?

• A) Leverage reduces the risk of equity even when there is no risk that the firm will default.
• B) Leverage increases the risk of debt even when there is no risk that the firm will default.
• C) Leverage increases the risk of equity even when there is no risk that the firm will default.
• D) Leverage reduces the risk of debt even when there is no risk that the firm will default.

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Definitions:

Robert Merton

An American sociologist noted for developing the theory of structural functionalism and concepts like self-fulfilling prophecy and role model.

Social Institution

An organized system of social behavior with a particular and recognized purpose, like family, education, religion, or the economy.

Structural Functionalism

A sociological approach that sees society as a complex system whose parts work together to promote solidarity and stability.

Stability

The state of being steady, consistent, and relatively unchanged, often regarded as a desirable condition in various contexts such as social, economic, and ecological systems.