Investors Typically Accept a Lower Risk-Adjusted Rate of Return on Debt

Multiple Choice

Investors typically accept a lower risk-adjusted rate of return on debt capital than on equity capital because:

A) debt is typically less risky because fixed claims bear less residual risk than equity claims.
B) equity bears less residual risk than debt.
C) equity capital costs are tax deductible.
D) the yield to maturity on equity is inversely related to its market value.