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.

---

Definitions:

Real Wealth Effect

The change in consumption levels caused by a change in purchasing power, often due to inflation or deflation.

Aggregate Demand Curve

The Aggregate Demand Curve represents the total quantity of all goods and services demanded by the economy at different price levels.

Equilibrium Real National Output

The level of output where aggregate supply equals aggregate demand in an economy, adjusted for inflation.

Inventories

Goods that have been produced but remain unsold.