Financial risk is the additional uncertainty of returns to equity holders due to
A) The firm's use of fixed financial obligations
B) The firm's level of fixed productions costs
C) Business risk
D) Choices a and b.
E) Choices b and c.

Question

Quizplus · Accepted Answer

Financial risk is specifically related to the firm's use of fixed financial obligations, such as debt or preferred stock. It is separate from business risk, which is related to the uncertainty of a firm's operating income. While fixed production costs can contribute to business risk, they are not directly related to financial risk. Therefore, choices B and E are incorrect. Choice D includes one correct answer (A) but is not the best choice because it also includes an incorrect answer (B).

Financial Risk Is the Additional Uncertainty of Returns to Equity