Assuming market efficiency, which one of these is the least sensible explanation of why convertibles and warrants are issued?

Multiple Choice

• The securities may resolve agency problems associated with raising money.

• The securities are useful when it is costly to assess the risk of the issuing firm.

  Incorrect

• The firm is relatively large with a low level of financial leverage.

  Correct

• The issuer has a low bond rating.

• Cash flows from these securities best match the cash flows of the firm.