Which of the Following Would Be a Good Reason to Choose

question 13

Multiple Choice

Which of the following would be a good reason to choose to make an equity investment in a corporation rather than lending money to a corporation?

• A)The return paid on an equity investment is more secure than the return on debt.
• B)The holder of an equity investment always receives a higher return than a debt holder.
• C)The holder of equity has the same legal entitlement to receive dividends as a debt holder has to receive interest.
• D)The return on equity is riskier than debt but is not fixed and may be higher.
• E)It is easier to assess the price of an equity investment.

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Definitions:

Gain or Loss

The financial result that occurs when the selling price of an asset differs from its book value.

Interest Receivable

The amount of interest that has been earned but not yet received by the lender.

Gain on Sale

The financial profit earned from selling an asset for more than its book value.

Interest Revenue

Earnings generated by providing loans or placing money into financial vehicles that accrue interest.