The asset substitution problem occurs when Group of answer choices managers substitute less risky assets for riskier ones to the detriment of equity holders. managers substitute less risky assets for riskier ones to the detriment of bondholders. managers substitute riskier assets for less risky ones to the detriment of bondholders. managers substitute riskier assets for less risky ones to the detriment of equity holders.

Question

Susie Q

Business

24 November, 14:58

The asset substitution problem occurs when Group of answer choices managers substitute less risky assets for riskier ones to the detriment of equity holders. managers substitute less risky assets for riskier ones to the detriment of bondholders. managers substitute riskier assets for less risky ones to the detriment of bondholders. managers substitute riskier assets for less risky ones to the detriment of equity holders.

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Keaton Joyce · Answer 1

The second line i. e "managers substitute less risky assets for riskier ones to the detriment of bondholders" is the correct answer to the given question.

Explanation:

The asset substitution issue is when the management of a business organization knowingly misleads the another one by exchanging the superior quality assets with the inferior quality assets after a quality review has already been carried out.

The challenge of asset substitution illustrates contradictions between the stockholders and creditors. The asset substitution supervisors replace less volatile assets with higher risk ones at the expense of bondholders. All the other options are not related to the asset substitution that's why they are incorrect option.