Equity and Debt in a Firm Are Option-Like

question 24

Multiple Choice

Equity and debt in a firm are option-like.Which of the following options are they?

• A)Equity is akin to a short call and debt is akin to a package containing a long put.
• B)Equity is akin to a long call and debt is akin to a package containing a short put.
• C)Equity is akin to a short put and debt is akin to a package containing a long call.
• D)Equity is akin to a long put and debt is akin to a package containing a short call.

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Definitions:

Cash Collected

The total amount of money received by a company during a specific period, often through sales or services rendered.

Accrual Basis

An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash transactions occur.

Accounting Principles

The standardized guidelines and rules followed by accountants to record, report, and summarize financial transactions, ensuring consistency and transparency.

Income Statement

A financial report that calculates a company's performance over a specific period, summarizing revenue, expenses, and profits.