Which of the Following Statements Is TRUE of the Debt

question 206

Multiple Choice

Which of the following statements is TRUE of the debt to equity ratio?

• A) The higher the debt to equity ratio, the lower the company's financial risk.
• B) The higher the debt to equity ratio, the greater the company's financial risk.
• C) If the debt to equity ratio is greater than 1, the company is financing more assets with equity than with debt.
• D) If the debt to equity ratio is less than 1, the company is financing more assets with debt than with equity.

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Definitions:

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase an asset or security at a predetermined price within a specific time frame.

In the Money

A term describing an option contract that has intrinsic value, where the strike price is favorable compared to the market price of the underlying asset.

Expected to Expire

Refers to assets or rights that have a limited time frame before they cease to be valid.

Warrant

A financial instrument that gives the holder the right to purchase a company's stock at a specific price before a certain date.