Answered

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If investors' aversion to risk rose, causing the slope of the SML to increase, this would have a greater impact on the required rate of return on equity, rs, than on the interest rate on long-term debt, rd, for most firms. Other things held constant, this would lead to an increase in the use of debt and a decrease in the use of equity. However, other things would not stay constant if firms used a lot more debt, as that would increase the riskiness of both debt and equity and thus limit the shift toward debt.

a. True
b. False

Sagot :

ogorwyne

Answer:

a. true

Explanation:

This answer is true because as firms use greater debt, this is going to raise the riskiness of debt and equity and it would limit the shift towards debt

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