The US government agrees to guarantee a bond issue planned by Demurrage Associates. The value of this guarantee:
I. Value of the loan with guarantee minus value of the loan without guarantee
II. Is a subsidy to equity investors in the firm issuing guaranteed debt
III. Is a windfall gain to the buyers of the bonds
IV. Equals the value of a put option on the firm's assets with an exercise price equal to the bond's face value
A) II only
B) I, II, and IV
C) I only
D) III only
Correct Answer:
Verified
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