If an Investor Wanted to Reduce the Risk of a Levered

question 55

Multiple Choice

If an investor wanted to reduce the risk of a levered stock in their portfolio, how could they go about doing so while still retaining shares in the company?

• A) They could sell some of their shares and use the proceeds to buy the firm's bonds.
• B) They could sell some of their bonds and use the proceeds to buy the firm's stock.
• C) They could use borrowed funds to buy more of the firm's stock.
• D) None of the options.

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Definitions:

Economic Self-interest

Economic self-interest is the motivation driving individuals or entities to make decisions that result in the greatest personal financial advantage.

Power Distance

The extent to which less powerful members of organizations and institutions accept and expect power to be distributed unequally.

Inequality

Refers to an uneven distribution of resources, opportunities, and rights among individuals or groups, leading to disparities in wealth, health, and social status.

Character Theories

Theories related to the study of personality that focus on the moral and ethical qualities of individuals.