According to the Empirical Evidence, Which of the Following Statements

question 2

Multiple Choice

According to the empirical evidence, which of the following statements about capital structure is true?

• A)Most firms tend to target a capital structure that is 40% debt and 60% equity.
• B)Most of the changes in capital structure is the result of an attempt to time the market by management.
• C)Slightly less than half of the changes in the capital structures of publicly traded, U.S. firms can be explained by changes in the value of their stock.
• D)Managers typically target an optimal capital structure and react relatively quickly to adjust their firm's capital structure if market forces change it.

Comprehend the concepts of bond premium and discount including their amortization.

Understand the nature of bonds as interest-bearing notes and their contractual aspects.

Grasp the relationship between bondholders and the issuing corporation, including the hierarchy of claims.

Understand the methods for amortizing bond discounts and premiums, including the straight-line and effective interest rate methods.

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Definitions:

Saving

The act of setting aside money for future use, either by depositing it in a bank or investing it.

Indirect Benefits

Advantages or improvements that are not directly observable or immediate but occur as a consequence of an action.

Direct Benefits

Immediate or tangible advantages that a person or organization can easily measure or identify.

Persuasive

Having the ability to convince others to agree with a viewpoint, idea, or course of action through argument or appeal.