Financial Leverage Is Negative When

question 14

Multiple Choice

Financial leverage is negative when:

• A)the return on total assets is less than the rate of return on common stockholders' equity.
• B)total liabilities are less than stockholders' equity.
• C)total liabilities are less than total assets.
• D)the return on total assets is less than the rate of return demanded by creditors.

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Definitions:

Return

Earnings or losses from an investment throughout a certain period, shown as a proportion of the investment's original price.

Portfolio's Expected Rate

The anticipated rate of return on a portfolio, based on the portfolio's asset allocation, expected performance, and market conditions.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, often used in statistics to quantify the volatility of a financial instrument.

Probability Distribution

An analytic function detailing the entire set of potential outcomes and their probabilities for a random variable within a certain range.