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

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Question restatement: If you believe that a firm will grow rapidly in the future, you should buy its
Options:
- bonds.
- common stock.
- notes.

Option 1: bonds. Bonds are a form of debt where you lend money to the issuer and receive fixed interest over time. This makes them more suitable for predictable income and capital preservation rather than benefiting from rapid growth in the issuing company. If the company grows quickly, bond prices may not rise as much as equity and you won’t participate in the upside beyond the fixed coupon.

Option 2: common stock. When you anticipate rapid growth, owning the company’s common stock allows you to participate in the potential appreciation of the firm’s value as profits and earnings expand. Equity ownership often captures the upside from expansion, technology adoption, market share gains, or scalable business models, albeit with higher risk than debt.

Option 3: notes. Notes typically refer to medium- to long-term debt instruments, which, like bonds, provide periodic interest but do not offer the same potential for upside as holding stock in a fast-growing company. They also carry credit risk and the payoff is generally tied to interest and principal repayment rather than equity growth.

Additional considerations: Growth-oriented investing emphasizes equity exposure to capture scalable earnings and share in the company’s expansion. Fixed-income instruments like bonds and notes prioritize income and safety, not disproportionate upside from rapid growth. Therefore, for someone predicting strong future expansion, the asset class most aligned with that expectation is equity ownership in the firm. The reasoning here contrasts how each instrument aligns with growth prospects and explains why debt instruments underperform relative to stock in fast-growth scenarios.

BUSFIN 1200 AU2025 (2014) Final Exam- Requires Respondus LockDown Browser

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

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BUSFIN 1200 AU2025 (2014) Final Exam- Requires Respondus LockDown Browser

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

View Explanation

Log in for full answers

Similar Questions

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Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

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