An exchange may offer:
A) allow customers a 30 day money-back guarantee on the firm's product.
B) allow customers a 90 day warranty on the firm's product from defects.
C) allow bondholders to exchange some debt for stock.
D) allow stockholders to exchange some of their stock for debt.
E) Both allow bondholders to exchange some debt for stock; and allow stockholders to exchange some of their stock for debt.

Question

Quizplus · Accepted Answer

The options A and B are related to the firm's product and are not relevant to an exchange. The options C and D are related to financial instruments and are opposite to each other. An exchange may provide the option for bondholders to convert their debt into equity (stock), which increases their ownership stake in the company. Conversely, it may also provide the option for stockholders to convert some of their equity into debt, which reduces their ownership stake but increases their fixed income. Therefore, option E is the best choice as it covers both possibilities.

An Exchange May Offer