Anna Borrows $5,000 from a Bank and Withdraws $1,000 from Her

question 26

True/False

Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, usually with dividends that are paid out prior to those to common stockholders.

Common Stock

A type of equity security that represents ownership in a corporation, with holders typically having voting rights and receiving dividends.

Market Price

The present rate at which a good or service is available for purchase or sale in an open market.

Cash Dividend

Funds distributed by a business to its owners, often sourced from its profits.