A Firm That Has No Debt Will Have Its ROA

question 1

True/False

A firm that has no debt will have its ROA equal to its ROE.

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Definitions:

Efficient Markets Hypothesis (EMH)

The hypothesis is that actual capital markets, such as the TSX, are efficient.

CAPM

Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Security Market Line (SML)

Positively sloped straight line displaying the relationship between expected return and beta.

Arbitrage Pricing Theory (APT)

An equilibrium asset pricing theory that is derived from a factor model by using diversification and arbitrage. It shows that the expected return on any risky asset is a linear combination of various factors.