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:

Hippocrates' Theory

A historical perspective on medicine that attributed health and disease to the balance of bodily fluids, introduced by the ancient Greek physician Hippocrates.

Personality Traits

Enduring characteristics or behaviors that define an individual and differentiate them from others.

Choleric

Relating to one of the four temperaments characterized by quickness to anger and bad temper.

Sanguine

describes a personality type that is cheerful, optimistic, active, and social, based on the ancient theory of humors associated with blood.