Question

which type of security accounts for most underwriting in the

United States? Which is likely to be more costly to underwrite: corporate debt

or equity? Why?

Answer 1

The type of security which accounts for most underwriting in the United States is the “Mortgage Loan”. Mortgage Loan is decided on the overall savings, credit history and earning capacity of the individual who borrows it.

Equity is more costly than Corporate Debt and the reason for such is, Debts have a fixed earning from the company in the form of interest (either fluctuating or fixed) while equity holders are not confirmed of receiving the benefit during any particular year. It has to depend on the net earnings of the company and hence equity holders are compensated more than debt holders. Thus with higher risks, higher returns have to be paid to equity holders than debt holders and hence from the cost perspective of the company equity is more expensive than debt.