The ____ the amount of debt in a firm's capital structure, the ____ will be the firm's beta.
A) larger; larger
B) smaller; larger
C) larger; smaller
D) smaller; smaller

Question

Quizplus · Accepted Answer

The beta of a firm measures its volatility or risk compared to the market as a whole. A firm with a larger amount of debt in its capital structure is considered riskier because debt obligations must be met regardless of the firm's financial situation, increasing its beta.

The ____ the Amount of Debt in a Firm's Capital