Which of the Following Statements Is True About Investing in Stocks

question 57

Multiple Choice

Which of the following statements is true about investing in stocks and bonds?

• A)Issuers of stocks can default on their stock obligations.
• B)Investing in stocks involves less risk because the future payments are less uncertain.
• C)In case of bankruptcy, bondholders get paid first ahead of stockholders.
• D)Bankruptcy occurs when the issuing firm is unable to fulfill its stock obligations.

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Definitions:

Break-even Point

The point at which total costs equal total revenue, meaning the business makes neither a profit nor a loss.

Variable Cost

Costs that change in proportion to the level of production or business activity, such as materials, labor, and utility costs.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salary, or insurance, providing stability to a company's expense structure.

Margin of Safety

The difference between actual or projected sales and the break-even point, often expressed as a percentage.