Which of the following is true about debt and equity? options: An investor can lose the entire investment in equity but always enjoys some return on debt. Debt returns are limited to the payment of interest and principal while equity returns are unlimited. Both debt and equity instruments must be repaid at some point. All debt instruments accrue and pay interest and all public equity instruments pay dividends.

Which of the following is true about debt and equity? options: An investor can lose the entire investment in equity but always enjoys some return on debt. Debt returns are limited to the payment of interest and principal while equity returns are unlimited. Both debt and equity instruments must be repaid at some point. All debt instruments accrue and pay interest and all public equity instruments pay dividends.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 21QTD

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You want to invest in a company that guarantees your money's interest payments and returns at the maturity date as an investor. Which is the best option for this investment? a. bonds b. stocks c. stocks and bonds d. neither stocks nor bonds
An investment vehicle, the investee, is created and financed with a debt instrument held by a debt investor and equity instruments held by some other investors. The equity tranche is designed to absorb the first losses and to receive any residual return from the investee. One of the equity investors who hold 30% of the equity is also the asset The investee uses its proceeds to purchase a portfolio of financial assets; thus, exposing them to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the debt investor as an investment. Such investment has minimal exposure to the credit risk associated with the possible default of the assets in the portfolio. It is because of the nature of the assets and of the equity tranche. The returns of the investee are significantly affected by the management of the investee’s asset portfolio. Managing the asset portfolio includes decisions about the selection,…
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Straight debt and equity have very different payoff structures. Debt holders get paid "first", but only up to the amount they are owed. Equity holders get paid "last", but essentially get all the upside after the debtholders' obligation has been satisfied. Group of answer choices True False
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Describe what a common stock yield is and why it is important for an investor. Describe and explain the importance of a bond yield also. How is a common stock investor and a bond investor different? What different expectations do they have? If a common dividend is not paid, what recourse do the stockholders have? What recourse do bond holders have available if bond interest payments are not made?
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Indicate whether each of the following statements is true or false. Support your answers with the relevant explanations. Modigliani and Miller’s Proposition II assumes that increased borrowing does not affect the interest rate on the firm’s debt. (Explain your reasoning.) Under the conditions of perfect capital markets, the cost of capital of a company financed fully by equity is expected to be equal to that of the same company but financed with 50% equity and 50% debt. (Explain your reasoning.) 3. The higher the systematic risk of a company’s stock, the higher the value of its beta. The higher the beta, the higher the return required by the investors. (Explain your reasoning.) 4. The higher the proportion of equity in a company’s overall capital structure, the higher return required by its debtholders. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.) 5.In the presence of corporate taxes, a company would prefer to raise…
Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mix
i) Give one advantage and one disadvantage, from the perspective of the company seeking finance, for each of the following options: Equity Straight bonds Convertible bonds Retained earnings Callable bonds

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	An investor can lose the entire investment in equity but always enjoys some return on debt.
	Debt returns are limited to the payment of interest and principal while equity returns are unlimited.
	Both debt and equity instruments must be repaid at some point.
	All debt instruments accrue and pay interest and all public equity instruments pay dividends.