Which of the Following Financial Instruments Entails the Most Risk

question 13

Multiple Choice

Which of the following financial instruments entails the most risk and potentially the highest returns for investors?

• A)Debt with a maturity of less than one year
• B)Bonds
• C)Common stock
• D)Preferred stock

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Definitions:

Underwriting Compensation

Fees or commissions paid to underwriters for their services in issuing and selling new securities.

Common Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s profits or losses.

Investment Bankers

Financial intermediaries who facilitate capital raising, mergers, acquisitions, and initial public offerings (IPOs) for corporations and governments.

Firm Commitment Underwriting

An agreement where an underwriter commits to buy all the securities from the issuer and sell them to investors, assuming full financial risk.