Which of the Following Statements Regarding the Debt-To-Equity Ratio Is

question 74

Multiple Choice

Which of the following statements regarding the debt-to-equity ratio is correct?

• A)A high ratio means that the company is primarily financed through stockholder investments.
• B)A higher ratio is preferred.
• C)The debt-to-equity ratio is a measure of a company's ability to pay its debt.
• D)The debt-to-equity ratio is a measure of investor and creditor risk.

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Definitions:

Security Market Line

A representation in financial markets of the relationship between risk and expected return, used in the Capital Asset Pricing Model.

Overpriced Security

A security trading at a price believed to be higher than its theoretical value or intrinsic worth.

Expected Market Rate

The anticipated rate of return on an investment as predicted by investors based on historical market data and trends.

Abnormal Return

Return on a stock beyond what would be predicted by market movements alone. Cumulative abnormal return (CAR) is the total abnormal return for the period surrounding an announcement or the release of information.