Debt Holders Can Be Thought as Owning the Firm but Having

question 58

Multiple Choice

Debt holders can be thought as owning the firm but having ________ a call option on the assets of the firm with a strike price equal to ________.

• A)sold,face value of debt
• B)bought,face value of debt
• C)sold,value of equity
• D)bought,value of equity
• E)bought,market value of debt

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Definitions:

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for financing inventory and accounts receivable.

Annual Simple Rate

The percentage rate of return calculated on an annual basis, using simple interest without compounding.

Yield

Definition: The income return on an investment, such as the interest or dividends received from holding a particular security.

Revolving Line of Credit

A flexible loan where the borrower can access funds up to a certain limit, pay back, and then borrow again without needing to reapply for a new loan.