Assume That for the Next Two Weeks,the Bondholders of Western

question 51

Multiple Choice

Assume that for the next two weeks,the bondholders of Western Markets have the option of exchanging their bonds for common shares of the firm's stock.As a result of these exchanges,you should expect the firm's debt-equity ratio to:

• A)decline and the stock's price to also decline.
• B)decline and the stock's price to remain constant.
• C)decline and the stock's price to increase.
• D)increase and the stock's price to increase.
• E)increase and the stock's price to remain constant.

---

Definitions:

Market Price

The price at which a good or service is offered in the marketplace.

Differentiated Products

Products that are distinguished from similar products by unique characteristics, branding, or quality, allowing companies to compete beyond price.

Perfectly Competitive

A descriptor of a market scenario where firms face many competitors, sell identical products, and have no control over the market price, leading to optimal efficiency and resource allocation.

Short Run

A time period in which at least one input, like plant size, is fixed and cannot be changed by the firm.