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:

Reification

Turning an abstract into a concrete thing—for example, assuming that because there are measures of intelligence, there is a unitary, tangible entity called intelligence.

Abstraction

The process of removing physical, specific details to focus on ideas or concepts at a more general, simplified level.

Real Thing

An authentic object or concept, as opposed to an imitation or reproduction.

Likert Scale

An interval scale on which respondents record their reactions to statements by checking their level of agreement between, for example, “strongly agree” and “strongly disagree.”