Question

Under what conditions is it most likely that a corporation will issue new stock as a form of finance?

a.

when the interest rate is falling

b.

when the interest rate is rising

c.

when the firm's stock prices is falling

d.

when bond prices are very high

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Answer #1

Option B. when the interest rate is rising

Explanation: When the interest rate is rising, debt finance would be costlier and the firm would like to go to equity financing.

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