The ABC Insurance Co. follows a policy of buying the same percentage of common stock as debt.
Question:
The ABC Insurance Co. follows a policy of buying the same percentage of common stock as debt. That is, if it buys 0.20 of a company’s debt, it will buy 0.20 of the company’s common stock.
The Metro Insurance Co. will only buy common stock in companies that have zero long-term debt. All the companies being invested in have the same operating risk.
Assume that there are zero taxes.
Which insurance company has a more risky investment strategy? Explain.
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The riskiness of an investment strategy depends on various factors including the types of securities ...View the full answer
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Related Book For 
An Introduction To Accounting And Managerial Finance A Merger Of Equals
ISBN: 9789814273824
1st Edition
Authors: Harold JR Bierman
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