Which of the Following Has the Highest Expected Return to the Investor

question 25

Multiple Choice

Which of the following has the highest expected return to the investor?

• A)Common Stock.
• B)Preferred Stock.
• C)Bonds.
• D)They all have similar expected returns.

Understand the relationship between earnings before interest and taxes (EBIT) and the firm's financial performance.

Calculate and interpret the firm’s unlevered cost of capital.

Assess the impact of financial restructuring on earnings per share and firm value.

Understand and calculate the degree of financial leverage (DFL) and its implications for firm risk.

---

Definitions:

Perfectly Competitive

A market structure characterized by a complete absence of rivalry among the individual firms.

Price Takers

Firms or individuals who accept the market price as given and have no influence to change it due to their small market share.

Market Price

The prevailing rate at which a service or asset is traded in the free market.

Standardized Product

Goods or services that are uniform in quality and performance, allowing them to be interchangeable among consumers.