Bondholders tend to offset the effects of selfish strategies implemented by shareholders by:
A)restructuring their loans to provide additional time to the firm to make repayment.
B)subordinating their bankruptcy position to the shareholders.
C)agreeing to reduce the outstanding principal balances on their loans.
D)agreeing to reduce the interest rate on existing loans.
E)increasing the interest rate on monies loaned to the firm.

Question

Quizplus · Accepted Answer

Bondholders may increase the interest rate on monies loaned to the firm as a way to offset the risk of shareholders' selfish strategies that might prioritize their own interests over those of the bondholders. This action compensates for the increased risk by providing a higher return to the bondholders.

Bondholders Tend to Offset the Effects of Selfish Strategies Implemented