Levered equity has Blank______ risk than unlevered equity.Multiple choice question.greaterthe sameless

Break Down the Problem

1. Identify the concepts of levered and unlevered equity.
2. Analyze the risk profiles of both types of equity.

Relevant Concepts

1. Levered Equity: This refers to equity that has debt in its capital structure. It is subject to higher financial risk due to the obligation to pay interest on that debt.
2. Unlevered Equity: This refers to equity that does not have any debt in its capital structure, hence is considered to carry less financial risk.

Analysis and Detail

1. Risk Comparison:
   • Levered equity typically shows greater risk compared to unlevered equity. This is because the debt amplifies the potential gains and losses for equity holders.
   • In scenarios where a company performs well, levered equity can provide higher returns, but if the company struggles, equity holders face higher losses due to the obligation to service debt.

Verify and Summarize

1. Given the definitions and risk implications, we can summarize that levered equity has greater risk than unlevered equity.

Final Answer

Levered equity has greater risk than unlevered equity.