A(n)________ 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
E)decrease,suppliers

Question

Quizplus · Accepted Answer

An increase in the volatility of assets benefits equity holders because their potential upside increases with the possibility of higher returns. However, this comes at a cost to debt holders who face greater risk of default or losses in the event of bankruptcy. Decreasing volatility would benefit debt holders at the expense of equity holders. The other choices (C and E) are not relevant to the volatility of assets.

A(n)________ in the Volatility of Assets of the Firm Benefits