Which of the Following Would Explain Why a Firm Would

question 10

Multiple Choice

Which of the following would explain why a firm would want to sell stocks instead of bonds?

• A) The owners are worried about the burden of debt.
• B) The owners don't want to give up ownership of the business.
• C) The owners aren't trying to finance production.
• D) Stocks are easier to issue than bonds are.
• E) There are more fees associated with issuing bonds.

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Definitions:

Expected Inflation Rate

The predicted average rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Market Risk Premium

The additional return that investors demand for holding a risky market portfolio instead of risk-free assets.

Required Rate Of Return

The required rate of return is the minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

Market Risk Premium

The extra yield an investor anticipates earning by choosing a volatile market portfolio over secure, risk-free investments.