Equity Contracts Account for a Small Fraction of External Funds

question 126

Multiple Choice

Equity contracts account for a small fraction of external funds raised by American businesses because

• A) costly state verification makes the equity contract less desirable than the debt contract.
• B) there is greater scope for moral hazard problems under equity contracts, as compared to debt contracts.
• C) equity contracts do not permit borrowing firms to raise additional funds by issuing debt.
• D) all of the above.
• E) both A and B of the above.

---

Definitions:

Skates

Cartilaginous fishes belonging to the family Rajidae in the superorder Batoidea of rays. More broadly, "skates" can refer to ice or roller skates used in sports and recreation.

Homo Habilis

Extinct hominin; earliest named Homo species; known only from Africa, where it arose 2.3 million years ago.

Homo Erectus

An extinct species of early human that lived throughout Africa and Eurasia during the Pleistocene Epoch.

Vertebrate Lung

A respiratory organ found in vertebrates that exchanges oxygen and carbon dioxide with the environment.