Multiple Choice
Kate plans to rent instead of buying her housing. Which of the following is an advantage of renting that she will realize?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which of the following securities has a purely fixed claim against a firm's cash flows?
A
Corporate bond
B
Preferred stock
C
Common stock
D
Stock option
Verified step by step guidance1
Understand the concept of 'fixed claim': A fixed claim refers to a financial instrument where the holder is entitled to a predetermined amount of cash flows, regardless of the firm's performance.
Analyze the characteristics of each security: Corporate bonds, preferred stock, common stock, and stock options have different claims on a firm's cash flows.
Corporate bond: A corporate bond represents a debt instrument where the bondholder is entitled to fixed interest payments and the repayment of principal at maturity. This is a purely fixed claim.
Preferred stock: Preferred stockholders receive dividends, but these are not guaranteed and depend on the firm's decision to pay them. This is not a purely fixed claim.
Common stock and stock options: Common stockholders have residual claims on cash flows after all obligations are met, and stock options provide the right to purchase stock at a specific price. Neither has a fixed claim.
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