Which of the Following Statements Is FALSE

question 24

Multiple Choice

Which of the following statements is FALSE?

• A)If the value of the firm's assets exceeds the required debt payment,debt holders are fully repaid.
• B)Another way to view corporate debt: as a portfolio of riskless debt and a short position in a call option on the firm's assets with a strike price equal to the required debt payment.
• C)Viewing debt as an option portfolio is useful as it provides insight into how credit spreads for risky debt are determined.
• D)You can think of the debt holders as owning the firm and having sold a call option with a strike price equal to the required debt payment.

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Definitions:

Good Faith Purchasers

Individuals who buy property without knowledge of any existing claims or issues, often protected by law.

Infants

Legally refers to individuals who are under the age of majority, typically considered to be 18 years in many jurisdictions, and who are thus limited in their ability to enter into contracts.

Minors

Individuals under the age of legal adulthood, which varies by country, typically recognized as under 18 or 21 years old.

Necessary

Something that is essential or required in a particular situation or for achieving a specific outcome.