\"Trading on the equity means exchanging bonds for stock.\" Do you agree? Explai
ID: 2586027 • Letter: #
Question
"Trading on the equity means exchanging bonds for stock." Do you agree? Explain.
A.
Yes. Trading on the equity means exchanging bonds for the purchase of stocks that are earning at a high rate. The objective is to increase the rate of return on common stockholders' equity.
B.
No. Trading on the equity means borrowing money at a certain interest rate (or obtaining funds from preferred stockholders at a certain dividend rate) and using the money to earn more than the cost of the funds. The objective is to increase the rate of return on common stockholders' equity.
C.
Yes. Trading on the equity means exchanging bonds for stocks in another company whose earnings are greater. The objective is to increase the rate of return on common stockholders' equity.
D.
No. Trading on the equity means borrowing money at a certain interest rate (or obtaining funds from preferred stockholders at a certain dividend rate) and using the money to buy equity in another company. The objective is to increase the rate of return on common stockholders' equity
Explanation / Answer
Option b is correct
Explanation:
Trading on equity means to raise the fixed cost capital(Debt and preference) on the basis of equity share capital so as to increasing the income of equity shareholders. It's main objective is to increase the rate of return on common Stockholders Equity.
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