申論題

3.(10 points) The equity in a firm is a residual claim, i.e., equity holders lay claim to all cashflows left over after other financial claim-holders (debt, preferred stock ctc,) have been satisfied. Ifa firm is liquidated, the same principle applies, with equity investors receiving whatever is left over in the firm atter all outstanding debts and other financial claims are paid off. The principle of limited liability, however, protects equity investors in publicly traded firms if the value of the firm is less than the valuc of the outstanding debt, and they cannot lose more than their investment in the firm.

(4) The relationship between equity/debt and firm value can be described by the following assets, call option, put option, and pure bond. Please fill in the correct position (long, short, or NO) for an investor to take to desctribe the relation between equity/debt and firm value. (3 points)

 Please explain tour reasons. (2 points) Put option