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Questions and Answers
What distinguishes fixed-income securities from equity securities?
What distinguishes fixed-income securities from equity securities?
- Fixed-income securities create no obligation to pay dividends or any other form of income.
- Equity securities are commonly known as bonds.
- Equity securities obligate the issuer to make payments of a fixed amount on a fixed schedule.
- Fixed-income securities require payments of a fixed amount on a fixed schedule. (correct)
What legal protection do bond holders have in the event of a bankruptcy?
What legal protection do bond holders have in the event of a bankruptcy?
- They are repaid before the liquidation of assets.
- They would be repaid after the liquidation of assets. (correct)
- They would receive nothing after the liquidation of assets.
- They have no legal protection in the event of a bankruptcy.
Why might a company raise money?
Why might a company raise money?
- To avoid bankruptcy and liquidation of assets.
- To pay off dividends to shareholders.
- To decrease the risk profile of the company.
- To finance an acquisition, buy equipment, or invest in new product development. (correct)
What determines the terms on which investors will finance a company?
What determines the terms on which investors will finance a company?
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What is the primary source of income for equity securities?
What is the primary source of income for equity securities?
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Study Notes
Fixed-Income Securities vs. Equity Securities
- Fixed-income securities provide a regular income stream to investors through interest payments, whereas equity securities represent ownership in a company and offer the potential for capital appreciation.
Bondholders' Legal Protection
- In the event of a bankruptcy, bondholders have a higher claim on a company's assets than shareholders, as they are considered creditors.
Raising Money
- Companies raise money for various reasons, including: • Financing new projects or ventures • Expanding existing operations • Refinancing debt • Repurchasing shares
Determining Financing Terms
- The terms on which investors will finance a company depend on factors such as: • The company's creditworthiness • Market conditions • The level of risk involved in the investment • The expected return on investment
Equity Securities' Primary Source of Income
- The primary source of income for equity securities is capital appreciation, which occurs when the value of the shares increases over time.
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Description
Test your knowledge of fixed income investments and securities with this quiz. Explore the concepts of bonds, interest rates, and payment schedules in the world of fixed-income investing.
