Which of the Following Would Not Be a Sensible Explanation

question 6

Multiple Choice

Which of the following would not be a sensible explanation of why convertibles and warrants are issued if markets are efficient?

• A) Cash flow from these securities best match cash flow of the firm.
• B) If the firm does well, convertible bonds will turn out to have been the better alternative versus issuing common stock.
• C) The securities are useful when it is costly to assess the risk of the issuing firm.
• D) The securities may resolve agency problems associated with raising money.

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