Question

Q1. A. Equity in a firm with debt is called which of the following:
(a) levered equity; (b) riskless equity; (c) unlevered equity; (d) risky equity. Circle your answer.

Answer 1

1. Levered Equity

Riskless equity is an oxymoron. Equity always carries risk since the return is not fixed. The return on equity is volatile. There cannot be an investment in equity which is riskless

Unlevered equity means 100% capital in equity and there is no leverage of debt

All equities are risky. There is nothing called a risky equity.

If equity is levered by debt in the capital structure, it is levered equity.

Equity in a firm with debt is called Levered Equity