A decrease in the possible range of %age stock returns can be achieved by:

Question

Quizplus · Accepted Answer

A decrease in the firm's financial leverage will decrease the variability of returns because there is less debt to service and therefore, less risk of default. This will result in a narrower range of possible outcomes for stock returns. An increase in asset risk or business risk will actually increase the variability of returns and widen the range of potential outcomes. A decrease in debt beta means the company's debt is less sensitive to changes in interest rates, but this does not necessarily impact the range of possible stock returns. Therefore, A is the best choice for decreasing the possible range of %age stock returns.

A Decrease in the Possible Range of %Age Stock Returns