Transfer or Expropriation of Wealth from Bondholders to Equityholders Is

question 9

Multiple Choice

Transfer or expropriation of wealth from bondholders to equityholders 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 under taken.
• D)subordinated debt because monitoring is much easier with subordinated straight debt is issued.
• E)None of the above.

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Definitions:

Police Powers

The capacity of the state to regulate behavior and enforce order within its territory, often exercised to protect a community’s health, safety, and welfare.

Federalism

A system of government in which power is divided between a central authority and constituent political units, like states or provinces.

Equal Protection Clause

A clause in the Fourteenth Amendment of the U.S. Constitution that prevents states from denying “the equal protection of the laws” to any citizen. This clause implies that all citizens are created equal.

State's Rights

The political powers reserved for U.S. states by the Constitution, distinct from those delegated to the federal government.