Bryan invested in Bryco stock when the firm was financed solely with equity.The firm is now utilizing debt in its capital structure.To unlever his position,Bryan needs to:
A)borrow some money and purchase additional shares of Bryco stock.
B)sell some shares of Bryco stock and loan it out.
C)sell some shares of Bryco stock and hold the proceeds in cash.
D)maintain his current position because the firm's use of leverage did not affect him.
E)sell some of his shares and also borrow money to increase his cash reserves.

Question

Quizplus · Accepted Answer

To unlever his position, Bryan should sell some shares of Bryco stock and loan out the proceeds. This action offsets the firm's increased leverage by reducing his exposure to the firm's equity risk.

Bryan Invested in Bryco Stock When the Firm Was Financed