A ________ in the volatility of assets of the firm benefits ________ at a cost to debt holders.
A)decrease,equity holders
B)increase,equity holders
C)decrease,directors
D)increase,directors

Question

Quizplus · Accepted Answer

An increase in volatility benefits equity holders as they have a higher risk appetite and are willing to take on higher risk for the potential of higher returns. However, this comes at a cost to debt holders as they have lower risk tolerance and are adversely affected by fluctuations in asset values.

A ________ in the Volatility of Assets of the Firm