When a Firm Has Risky Debt, Its Equity Can Be

question 35

True/False

When a firm has risky debt, its equity can be viewed as an option on the total value of the firm with an exercise price equal to the face value of the debt.

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Definitions:

Payor Bank

A bank that is responsible for paying a check or draft presented for payment.

Intermediary Bank

Any bank, other than a payor or depository bank, that transfers a check during the check collection process.

Cashier's Check

A check issued by a bank, drawn on its own funds rather than that of a personal account, which guarantees the payee payment.

Certified Check

A check verified by a bank, guaranteeing that the signer has enough funds to cover the amount of the check.