EQUITY SECURITIES FINAL PAPER EXAM QUESTIONS ACCURATE ANSWERS FULL

EQUITY SECURITIES FINAL PAPER EXAM QUESTIONS ACCURATE ANSWERS FULL
SOLUTION




Question:
What is the difference between equity and debt?

Answer:
Equity (stock) represents ownership, while debt (bonds) represents a creditor relationship.



Question:
What are the key characteristics of equity?

Answer:
Ownership interest, limited liability, liquidity, potential income (dividends), potential growth
(capital appreciation), and residual claim on assets.



Question:
What security represents ownership?

Answer:
Stock



Question:
What rights do common stockholders have?

Answer:
Voting rights, dividends, capital appreciation, preemptive rights, and residual claim in liquidation.



Question:

, What are capital gains?

Answer:
Profits from the sale of an asset, realized when sold and taxable.



Question:
What is a stock dividend?

Answer:
More shares issued to shareholders, not taxable when received, lowers cost basis per share.



Question:
What is a stock split?

Answer:
An accounting change that does not affect ownership percentage or total value.



Question:
What is the liquidation priority of common stock?

Answer:
Common stockholders are paid last in liquidation.



Question:
What is limited liability in the context of equity?

Answer:
The maximum loss is limited to the amount invested; personal assets are not at risk.



Question:
What are the major risks associated with common stock?