Which of the Following Best Describes Galt's Debt Using a Put

question 18

Multiple Choice

Which of the following best describes Galt's debt using a put option?

• A)Long $200 million in risk free debt and Short a put option on the firm's assets with a $200 strike price
• B)Short $200 million in risk free debt and Long a put option on the firm's assets with a $200 strike price
• C)Long $200 million in risk free debt and Short a put option on the firm's assets with a $700 strike price
• D)Short $200 million in risk free debt and Long a put option on the firm's assets with a $700 strike price

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Definitions:

WACC

Weighted Average Cost of Capital; a method for assessing a firm's capital costs by applying proportional weights to each kind of capital.

Credit Rating

An evaluation of the creditworthiness of an individual or corporation, often expressed as a grade or score, that reflects the likelihood of the entity defaulting on its debts.

Cost of Debt

The effective rate that a company pays on its total debt.