Which of the Following Is Not an Accurate Statement Regarding

question 26

Multiple Choice

Which of the following is not an accurate statement regarding the distinction between debt and equity?

• A)Only equity is considered a source of financing for operations of the business,since debt must be repaid at a specified maturity date.
• B)If a business ceases operations and liquidates,claims of all creditors have legal priority over claims of the stockholders.
• C)Most debt requires the borrower to pay interest;equity financing does not obligate the company to make a specified payment.
• D)The providers of equity are owners of the business;the providers of borrowed funds are creditors.

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Definitions:

Effective Rate

The actual interest rate an individual pays on a loan or earns on an investment, taking into account the effect of compounding.

Quarterly Compounding

A technique in which interest is computed and then compounded to the main amount quarterly.

Nominal Rate

The stated interest rate of a bond or loan, not adjusting for inflation or the compounding of interest.

Monthly Compounding

The monthly interest computation strategy that involves both the starting principal amount and the earned interest from earlier times.