Which of the Following Is True About Bonds and Common

question 143

Multiple Choice

Which of the following is true about bonds and common stock?

• A)Bonds and common stock are both shareholders' equity accounts.
• B)The company that has issued bonds and common stock has a legal responsibility to pay back the principal when the bonds and stock mature.
• C)The company has a legal responsibility to pay interest and dividends each year.
• D)Bondholders do not have voting rights,while common shareholders do.

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Definitions:

Risk Aversion

A preference to avoid uncertainty, characterized by investors' tendencies to prefer safer investments over more risky ones.

Portfolio Theory

A financial model that describes how to assemble a diversified portfolio to maximize returns and minimize risk based on expected returns and the variance of each asset.

Capital Budgeting

The process by which investors and managers evaluate the long-term investments and projects of a company in terms of their potential profitability and benefits.

Probability Distribution

A probability distribution is a statistical function that describes all the possible values and likelihoods that a random variable can take within a given range.