Return on equity for a very risky firm should be higher than return on equity for a less risky firm.

Name: Return on equity for a very risky firm should be higher than return on equity for a less risky firm.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

This is because investors require a higher rate of return to compensate for the higher risk they are taking on. Higher risk implies a greater probability for failure or loss, therefore, investors require a higher return to justify the increased risk.

Return on Equity for a Very Risky Firm Should Be