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All else equal, when a company's debt ratio rises, its beta falls.
True
False
Solution
False: All else equal, when a company's debt ratio rises, its beta falls.
The firm increasing its debt ratio will have higher beta. Before debt firm is unlevered, as debt get
added the firm becomes levered firm. The leverage bring more return to equity with added
volatility to equity hence the beta at overall level increases because it represents the systematic
risk measure.

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All else equal, when a companys debt ratio rises, its beta falls..pdf

  • 1. All else equal, when a company's debt ratio rises, its beta falls. True False Solution False: All else equal, when a company's debt ratio rises, its beta falls. The firm increasing its debt ratio will have higher beta. Before debt firm is unlevered, as debt get added the firm becomes levered firm. The leverage bring more return to equity with added volatility to equity hence the beta at overall level increases because it represents the systematic risk measure.