Determine if each statement is TRUE or FALSE.

a. Using debt to buy a house (e.g. mortgage) or to purchase stocks (margin account) increases leverage and thus magnifies the percentage return on equity for both gains and losses.

b. Carrying high debt levels can magnify gains (losses) and increase return on equity (ROE), which is one reason why many firms take on a lot of debt.

c. Large-company stocks usually carry larger default risk premiums than do small-company stocks; and Treasury bonds usually carry larger inflation and interest-rate risk premiums than do Treasury Bills.

d. If Hersheys wants to increase its debt/equity ratio, it should sell stock and, with the proceeds, pay off debt.