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Question: Why are the costs of selling equity


Why are the costs of selling equity so much larger than the costs of selling debt?

Answer:

From the previous question, economies of scale are part of the answer. Beyond this, debt issues are easier and less risky to sell from an investment bank’s perspective. The two main reasons are that very large amounts of debt securities can be sold to a relatively small number of buyers, particularly large institutional buyers such as pension funds and insurance companies, and debt securities are much easier to price.


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