For the example discussed in notes page 38, if we reduce the interest rate from 10% to 5% while maintaining everything else the same, which of the following statements is NOT true?

A.With a lower interest rate, the debt is less risky. As a result, the equity is more valuable, although the total firm value remains the same.

B.The return on equity for the levered firm varies across the different states of the economy.

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The effect of debt financing on equity - an example