Question

It is _______ for a company to issue equity than debt; it is ________ for an investor to buy equity in a company than debt in the same firm.

Answer 1

Answer:

It is safer for a company to issue equity than debt

It is riskier for an investor to buy equity in a company than debt in the same firm

Explanation:

If company issues debt that it has to make fixed interest payments, thus even if company is making losses, it has to pay interest which is not in case of equity. Hence, it is riskier option for the company to raise debt.

On the other, if investor in debt, then he will get fixed interest, thus debt option is relatively cheap than equity for investor