Which of the Following Is True of the Financial Distress

question 14

Multiple Choice

Which of the following is true of the financial distress of a company and hedging?

• A)Firms that face high financial distress costs have greater incentives to hedge.
• B)Hedging eliminates the possibility of financial distress.
• C)If the cost of hedging is sufficiently large,and if hedging reduces variance very little,then hedging decreases the probability of financial distress.
• D)Hedging has no impact on the cash flows of an unlevered firm and on the costs of financial distress.

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Definitions:

Negative Reinforcer

Any unpleasant stimulus that, when removed after a response, strengthens the response, making it more likely to occur in the future.

Immediate Reinforcement

The provision of a reward directly following a desired behavior to strengthen its occurrence.

Fixed-interval Schedule

A reinforcement schedule where a reward is given for the first response after a predetermined time period has passed.

Conditioned Reinforcers

Stimuli that acquire their reinforcing power through association with primary reinforcers, playing a role in shaping behavior.