Multiple Choice
Capitalization (cap) refers to the total value of a company described in which of the following ways?
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1. Introduction to Accounting
Types of Accounting
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Which of the following are debt certificates that are purchased by an investor?
A
Common stock
B
Bonds
C
Dividends
D
Preferred stock
Verified step by step guidance1
Step 1: Understand the concept of debt certificates. Debt certificates represent a form of borrowing where the issuer promises to repay the principal amount along with interest to the investor. These are typically issued by corporations or governments.
Step 2: Differentiate between equity and debt instruments. Equity instruments, such as common stock and preferred stock, represent ownership in a company, whereas debt instruments, like bonds, represent a loan made by the investor to the issuer.
Step 3: Analyze the options provided. Common stock and preferred stock are equity instruments, and dividends are payments made to shareholders, not debt certificates.
Step 4: Recognize that bonds are debt certificates. Bonds are purchased by investors as a form of lending money to the issuer, who agrees to pay back the principal along with periodic interest payments.
Step 5: Conclude that the correct answer is bonds, as they are the only option listed that qualifies as debt certificates purchased by an investor.
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