Chapter 1 - Solutions

Now we will show that we can convert L into U. Compare two strategies: [1(] Buy P percent of firm U; [2(] Buy P percent of the shares of firm L, and buy percent P of the debt of firm L. Exhibit 2 shows that the incomes of the two strategies are identical. Exhibit 2. Convert L into U [using [2(]) Strategy Net Investment of the strategy Income [1(] ................
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