As firms become more leveraged, the risk of insolvency rises because

As firms become more leveraged, the risk of insolvency rises because

A) the use of debt results in interest payments that cannot be avoided during poor economic conditions.
B) bondholders trade lower risk for greater expected returns.
C) interest payments on most bonds vary with the level of market rates.
D) bondholders are less vigilant than shareholders.
E) debt-financed firms are less able to take advantage of a strong economy.

ANSWER

A