Allow me to comment on my own question.....
Although poorly worded, I believe the point Brealey and Myers was trying to
get across is that if there was an insufficient supply of levered shares,
then a person may pay a small premium for the firm's levered shares instead
of borrowing. My opinion is that this amount of premium would be
equivalent to the amount of interest the individual would have to pay (on
the borrowed amount) in excess of the interest payment that
would give the total investment the same return as only investing in the
levered shares.
At 03:06 PM 8/3/98 -0400, Michael McKenney wrote:
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>Your following message has been delivered to the 70 members of
> the list studygroup5B@lists.casact.org at 15:25:26 on 3 Aug 1998.
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>
>
>Allow me to comment on my own question.....
>
>Although poorly worded, I believe the point Brealey and Myers was trying to
>get across is that if there was an insufficient supply of levered shares,
>then a person may pay a small premium for the firm's levered shares instead
>of borrowing. My opinion is that this amount of premium would be
>equivalent to the amount of interest the individual would have to pay (on
>the borrowed amount of money needed to purchase shares of an unlevered
>company with the same firm value) in excess of the interest payment that
>would give the same return as the levered shares.
>
>
>
>
>