Which of the following statements is FALSE?
A)If the value of the firm's assets exceeds the required debt payment,debt holders are fully repaid.
B)Another way to view corporate debt: as a portfolio of riskless debt and a short position in a call option on the firm's assets with a strike price equal to the required debt payment.
C)Viewing debt as an option portfolio is useful as it provides insight into how credit spreads for risky debt are determined.
D)You can think of the debt holders as owning the firm and having sold a call option with a strike price equal to the required debt payment.

Question

Quizplus · Accepted Answer

The correct view is that corporate debt can be seen as a portfolio of riskless debt and a long position in a put option, not a short position in a call option.

Which of the Following Statements Is FALSE