As a Firm Increases Its Level of Debt Relative to Its

question 53

Multiple Choice

As a firm increases its level of debt relative to its level of equity,the firm is:

• A)increasing the fraction of the firm financed with equity.
• B)decreasing the fraction of the firm financed with debt.
• C)decreasing its leverage.
• D)increasing its leverage.
• E)becoming unlevered.

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Definitions:

Selection Contribution

The return added to a portfolio through the successful selection of securities, differentiating from the return that would result from holding a passive benchmark portfolio.

Total Excess

The amount by which returns on an investment exceed the benchmark or risk-free return over a specified period.

Bogey Portfolio

An investment portfolio that serves as a benchmark against which other portfolios' performances are measured.

Geometric Average

A method of calculating the average rate of return of a set of values multiplicatively linked together, commonly used to determine the performance of investments over time.