A Company Issues Bonds Saying That It Will Use the Proceeds

question 41

Multiple Choice

A company issues bonds saying that it will use the proceeds for a safe investment.Instead, it uses the proceeds for a risky investment.Which of the following statements is true about this situation.

• A) This is an example of asset switching or bait and switch.
• B) What the company does with the funds once it raises them isn't the business of the debtholders.
• C) This will result in an increase in the value of the debt because the company is riskier.
• D) All of the above.
• E) None of the above.

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Definitions:

Establishing a Direction

The act of setting a course or guiding principles that an organization or individual intends to follow.

Elements

Fundamental components or substances that cannot be simplified using chemical means, forming the building blocks of matter.

Motivation

The inner drive or process that stimulates and directs human behavior towards achieving specific goals.

Creativity

The use of imagination or original ideas to create something; inventiveness.