In a setting where there is no risk that a firm will default, leverage does not change the risk of equity.

Name: In a setting where there is no risk that a firm will default, leverage does not change the risk of equity.
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Leverage increases the risk of equity even in a setting with no default risk because it amplifies the volatility of returns to equity holders due to the fixed cost of debt.

In a Setting Where There Is No Risk That a Firm