If a Firm Chooses to Maintain a Fixed Debt-Equity Ratio,it

question 76

Multiple Choice

If a firm chooses to maintain a fixed debt-equity ratio,it can raise the additional needed funds by:

• A) issuing debt, in which case dividends become the balancing item.
• B) issuing debt, in which case the amount of debt itself becomes the balancing item.
• C) issuing stock, in which case dividends become the balancing item.
• D) issuing stock, in which case no balancing item is needed.

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Definitions:

Mortgage Default Rate

The percentage of home mortgages on which the borrower is late by ninety days or more with the payments on the loan or it is in the foreclosure process. This rate is sometimes referred to as the serious delinquency rate.

Foreclosure Process

The legal procedure by which a lender attempts to recover the balance of a loan from a borrower who has defaulted on their mortgage payments by forcing the sale of the asset used as the collateral for the loan.

Monthly Payment

A fixed amount of money paid on a regular monthly basis for a wide range of financial obligations, including loans or rent.

Sub-prime Loan

A loan offered to individuals with poor credit histories or higher risk of default than prime borrowers, often at a higher interest rate.