提问

问题如下：

Innovative Inventions, InCneeds to raise €10 million. If the company chooses to issue zero-coupon bonds, its debt-to- equity ratio will most likely:

选项：

A.rise as the maturity date approaches. B.decline as the maturity date approaches. C.remain constant throughout the life of the bond.

解释：

The value of the liability for zero-coupon bonds increases as the discount is amortised over time. Furthermore, the amortised interest will reduce earnings at an increasing rate over time as the value of the liability increases. Higher relative debt and lower relative equity (through retained earnings) will cause the debt-to-equity ratio to increase as the zero-coupon bonds approach maturity.