Which of the following conclusions regarding bonds in tax-favored corporate reorganizations is faulty?
A) Bonds exchanged must have the same face value to ensure that the holder will receive equal value when the bonds are repaid.
B) The interest rates on the bonds should be the same percentage because if the bond holder receives a security with a higher interest rate, the bondholder is receiving an asset with a greater value.
C) Debt instruments with lives longer than 10 years are treated as securities because they have more risk associated with the likelihood that they will be repaid; this is similar to the risk with owning stock long-term.
D) Bonds exchanged for stock do not receive tax-favored treatment because this exchange is essentially the purchase of stock by changing a debt holder into a shareholder.

Question

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The Answer of Which of the following conclusions regarding bonds in tax-favored corporate reorganizations is faulty?
A) Bonds exchanged must have the same face value to ensure that the holder will receive equal value when the bonds are repaid.
B) The interest rates on the bonds should be the same percentage because if the bond holder receives a security with a higher interest rate, the bondholder is receiving an asset with a greater value.
C) Debt instruments with lives longer than 10 years are treated as securities because they have more risk associated with the likelihood that they will be repaid; this is similar to the risk with owning stock long-term.
D) Bonds exchanged for stock do not receive tax-favored treatment because this exchange is essentially the purchase of stock by changing a debt holder into a shareholder.

Which of the Following Conclusions Regarding Bonds in Tax-Favored Corporate