A Government Guarantee of a Firm's Existing Debt

question 60

Multiple Choice

A government guarantee of a firm's existing debt

• A)has a cost equal to that of a put option.
• B)benefits shareholders at the expense of current bondholders.
• C)converts risk-free debt into risky debt.
• D)is costless to taxpayers.
• E)is essentially exercising a call option on the firm.

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