Which of the Following Would Not Be a Sensible Explanation

question 41

Multiple Choice

Which of the following would not be a sensible explanation of why convertibles and warrants are issued if markets are efficient?

• A)Cash flow from these securities best match cash flow of the firm.
• B)If the firm does well, convertible bonds will turn out to have been the better alternative
• Versus issuing ordinary equity.
• C)The securities are useful when it is costly to assess the risk of the issuing firm.
• D)The securities may resolve agency problems associated with raising money.
• E)All of the above are sensible explanations.

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Definitions:

Consideration

Something of value that is given by both parties to a contract as the agreed-upon price or exchange for the contractual promises.

Valid Consideration

An essential element of a contract, which constitutes something of value exchanged between the contracting parties.

Forbearance

Forbearance is the action of refraining from enforcing a right, obligation, or debt in a legal agreement, usually as an act of leniency by the creditor.

Sufficient Consideration

A legal concept indicating that the value exchanged in a contract is recognized as adequate, making the contract binding and enforceable.