Which of the following statements is true regarding debt ratios?
A. Firms with relatively low debt ratios have higher expected returns when business is good.
B. Firms with relatively low debt ratios are exposed to more risk compared to firms with relatively high debt ratios.
C. Firms with relatively high debt ratios have higher expected returns when business is bad.
D. Firms with relatively high debt ratios have higher expected returns when business is good.
E. Firms with relatively low debt ratios have higher expected returns when business is poor.
Answer: D
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