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Which one of the assertions about statement 1 and statement 2 is most likely to be...

Which one of the assertions about statement 1 and statement 2 is most likely to be true? Statement 1: Yesterday, the amount of trading activity on the stock market involving common stock was greater than the amount of trading activity on the stock market involving preferred stock.

Statement 2: If Cherry’s Blossoms has issued preferred stock, common stock, and bonds, then the preferred stock of Cherry’s Blossoms is most likely to be the riskiest of the securities issued by the company.

A. Statement 1 is true and statement 2 is true

B. Statement 1 is false and statement 2 is true

C. Statement 1 is false and statement 2 is false

D. Statement 1 is true and statement 2 is false

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Answer #1

Statement 1 is true and statement 2 is false in this case

Statement 1 is true as

There are different security classes namely: common stock, preffered stock and bonds that trade on the stock market. Trading activity of any security class could be higher anyday. So, on that particular day, trading activity on the stock market involving common stock was greater than the amount of trading activity on the stock market involving preferred stock. Hence, statement 1 is correct.

Statement 2 is False as

Preferred stock is always the most riskiet one as they are residual claiments in case of dilution of the company. The level of riskiness is Bond<Preffered stock<Common stock. Hence, statement 2 is False.

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