How WMPL will be able to earn profit by taking position in debt and equity securities of XYZ Limited?

6 An investor can earn profit from distressed securities by taking long position in Debt and Short position in equity. Following are the examples of earning arbitrage profit: (i) In case company's condition improves because of priority, the investor will get his interest payment which will be more than dividend on his short position in equity shares. (ii) If company's condition further deteriorates the value of both share and debenture goes down. He will make good profit from his short position. ALTERNATIVE The WMPL will take long position in Debt and Short Position in Equity of XYZ Ltd. This strategy will be profitable because if XYZ Ltd. go bankrupt though both Debt and Equity will lose value but since debt has a priority over Equity in repayment it will be a safe bet. However, if financial position of company improves any loss on account of short position in Equity will be compensated by gain in the Debt position.