Transfer or Expropriation of Wealth from Bondholders to Stockholders Is

question 39

Multiple Choice

Transfer or expropriation of wealth from bondholders to stockholders is less likely to occur when:

• A) subordinated straight debt is issued because there are other senior bondholders to protect them.
• B) convertible debt is issued because the equity component will reduce these agency costs when value is shared.
• C) convertible debt is issued because the holders can more readily sue when a high-risk project is undertaken.
• D) subordinated debt is issued because monitoring is much easier when subordinated straight debt is issued.
• E) None of these.

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