Question

Why might an investor prefer to invest in a company's equity rather than its debt?

Why might an investor prefer to invest in a company's equity rather than its debt?

Homework Answers

Answer #1

An investor might prefer to invest in the equity of a company rather than its debt because-

  • You are a part owner of the company if you own the equity of that company. Owning debt does not give any ownership.
  • Equity ownership comes with voting rights it gives you the privilege to be a part of the decision making of the company. That owners do not have any voting rights.
  • Equity owners have unlimited growth opportunity. All the money that is left after paying that it it is the profit for equity owners. That is only paid a percentage interest rate.
  • A shareholder can take advantage of rights issue and bonus shares. A debt holder does not get this opportunity.

Do let me know in the comment section in case of any doubt.

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