Multiple Choice
Which of the following best describes a discount bond?
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7. Receivables and Investments
Introduction to Investments in Securities
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Which of the following is an example of an equity investment?
A
Treasury bill
B
Certificate of deposit (CD)
C
Corporate bond
D
Common stock of a corporation
Verified step by step guidance1
Step 1: Understand the concept of equity investment. Equity investment refers to the purchase of ownership interest in a company, typically through buying shares of stock. This ownership gives the investor a claim on the company's assets and earnings.
Step 2: Differentiate equity investments from debt investments. Debt investments, such as treasury bills, certificates of deposit (CDs), and corporate bonds, involve lending money to an entity in exchange for interest payments and the return of principal at maturity. Equity investments, on the other hand, represent ownership in a company.
Step 3: Analyze the options provided in the question. Treasury bills, CDs, and corporate bonds are all examples of debt investments because they involve lending money rather than purchasing ownership in a company.
Step 4: Identify the correct example of an equity investment. Common stock of a corporation is an equity investment because it represents ownership in the corporation and entitles the investor to a share of the company's profits and voting rights.
Step 5: Conclude that the correct answer is 'Common stock of a corporation,' as it is the only option that represents an equity investment.
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