Assuming market efficiency,which one of these is the least sensible explanation of why convertibles and warrants are issued?
A)Cash flows from these securities best match the cash flows of the firm.
B)The firm is relatively large with a low level of financial leverage.
C)The securities are useful when it is costly to assess the risk of the issuing firm.
D)The securities may resolve agency problems associated with raising money.
E)The issuer has a low bond rating.

Question

Quizplus · Accepted Answer

The size and financial leverage of the firm are not relevant factors in the decision to issue convertibles and warrants. The other options provide more sensible explanations, such as matching cash flows, reducing agency problems, and managing risk.

Assuming Market Efficiency,which One of These Is the Least Sensible