Which of the Following Statements Is FALSE

question 28

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:

Set Up

The process or action of making something operational or ready for use, especially in a context of preparation or installation.

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs and production technology.

Peanuts

Peanuts are a type of legume or groundnut that is cultivated for its edible seeds, widely consumed globally as a snack, in culinary dishes, or processed into oil and other food products.

Cashews

Edible nuts from the cashew tree characterized by their rich flavor and nutritional content, commonly consumed as snacks or used as ingredients in various dishes.