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KNOWLEDGE CHECK Which of the following statements is true? When you buy an equity, your potential...

KNOWLEDGE CHECK Which of the following statements is true?

When you buy an equity, your potential loss is unlimited and your maximum potential gain is 100%

When you buy a bond , you are promised the residual income of that company

When you buy an equity, your are promised a steam of fixed dividends

When you buy an equity, the most you can lose is 100% and your potential gain is unlimited

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Answer #1

The correct statement is When you buy an equity, the most you can lose is 100% and your potential gain is unlimited

The Company can use two method to raise the capital which is Debt and Equity, In Equity, the investors gets ownership in return of capital invested in the company, So, their loss is unlimited to 100% and the gain is also Unlimited as the earning of the company belongs to the shareholders or owners.

In Debt, The Investor gets fixed rate of return each period in return of capital invested.

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