In a setting where there is no risk that a firm will default, leverage ________ the risk of equity.
A) increases
B) decreases
C) does not change
D) cannot say for sure

Name: In a setting where there is no risk that a firm will default, leverage ________ the risk of equity. A) increases B) decreases C) does not change D) cannot say for sure
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Question

Quizplus · Accepted Answer

Leverage increases the risk of equity because it amplifies the potential returns or losses to equity holders, making their investment riskier.

In a Setting Where There Is No Risk That a Firm