Common stock is a ___________________ in the corporation it is issued by.

Question

BlackTom AI · Accepted Answer

The question asks about the nature of common stock in the corporation it is issued by.
Option 1: residual interest. This is the standard characterization of common stock: shareholders own a residual claim on assets after all debts and obligations have been satisfied, and they participate in profits through dividends and capital appreciation. The description aligns with equity ownership in a corporation.
Option 2: senior obligation. This would describe debt instruments like bonds or loans, where creditors have priority over equity holders in claims on assets and earnings. Common stock does not have this senior, priority status; it is not a debt obligation.
Option 3: liability. A liability is a present obligation arising from past events, which would require the entity to outflow resources. Common stock represents ownership interest, not an obligation the company owes, so categorizing it as a liability is inaccurate.
Option 4: discounted instrument. The phrase 'discounted instrument' typically refers to debt securities or instruments issued at a discount or with discounted features. Common stock is not issued as a discounted instrument in the same sense, and equity securities do not function as debt instruments with discount terms. Hence this option mischaracterizes the nature of stock issuance.
In summary, the description that best fits common stock is that it represents a residual interest in the corporation, distinguishing equity from liabilities and debt instruments.

37:533:360:90 HRM FINANCIAL DEC. Module 9 Quiz - Know Your Stocks and Bonds

Common stock is a ___________________ in the corporation it is issued by.

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37:533:360:90 HRM FINANCIAL DEC. Module 9 Quiz - Know Your Stocks and Bonds

Common stock is a ___________________ in the corporation it is issued by.

View Explanation

Log in for full answers

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If you believe that a firm will grow rapidly in the future, you should buy its

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