2. __ Which of the following is a counterargument to explaining the dilution of the market price...

2. __ Which of the following is a counterargument to explaining the dilution of the market price of its stock after a corporation issues more shares by saying the same profits then need to be divided among more shares?

a. Selling more shares should enable the corporation to invest the proceeds and increase net income.

b. Stock has an interest tax shield.

c. All stock transactions are regulated by the SEC.

d. Stock is a debt instrument.

3. __ A bond that has a call provision provides more risk to the ___________ of getting paid off early when reinvestment rates for the same type of bond would be lower.

a. bond issuer

b. bond investor

c. government

d. community

Solutions

Expert Solution

1. Selling more shares should enable the corporation to invest the proceeds and increase net income

All the remaining oprtion are incorrect.Since Stock does not have an interest tax shield as dividend are not tax deductible.Futher Stock is not a debt instrument as there is no liability to repay it.All stock transactions are regulated by the SEC is irrelevant option.

Thus correct answer is Option A

2.The correct answer is Option B(Bond investor)

Since bond issuer get benefit by refinancing its debt at lower rate.Remaining options are irrelevant.

jeff jeffy answered 2 years ago

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