Which of the Following Statements Is CORRECT

question 55

Multiple Choice

Which of the following statements is CORRECT?

• A) Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything,bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects.
• B) Since bondholders receive fixed payments,they do not share in the gains if risky projects turn out to be highly successful.However,they do share in the losses if risky projects fail and drive the firm into bankruptcy.Therefore,bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects.
• C) One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays,thereby eliminating the double taxation investors would face in a partnership.
• D) One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor.
• E) Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.

Develop the ability to simplify complex algebraic expressions involving radicals by rationalizing the numerator or denominator.

Understand the different types of markets and their functions within the financial system.

Differentiate between primary and secondary markets.

Recognize the role and significance of financial intermediaries in the financial system.

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Definitions:

Personal Fulfillment

The achievement of life goals, dreams, or ambitions leading to a sense of satisfaction and contentment.

Self-Actualization

Realization or fulfilment of one's talents and potentialities, considered as a drive or need present in everyone.

Personal Fulfillment

A sense of satisfaction or achievement an individual feels upon meeting personal goals, values, or desires.

Shelter

A structure that provides protection from the environment, including homes, buildings, and temporary accommodations.