Question

A firm's risk level will fluctuate as its changes. a) financial leverage, b) debt-to-equity, c) degree of financial leverage, d) all of the above?

Answer 1

Answer is option (d) all of the above.

Firm's risk level will fluctuate by changing any of the below:

(a) financial leverage

(b) debt to equity &

(c) degree of financial leverage

All the above are positively correlated with the firm's risk level.

Increasing any of the above will increase the firm's risk level and

similarly, decreasing any of the above will reduce firm's risk.