Which of the following is an example of a capital market instrument?

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BlackTom AI · Accepted Answer

The question asks: Which of the following is an example of a capital market instrument? We begin by clarifying what capital market instruments are. In finance, capital market instruments are securities that are traded in markets for long-term funding, typically with maturities longer than one year, and they include equity and long-term debt.

Option: 'Preferred stock.' This is a type of equity instrument that generally pays fixed dividends and has priority over common stock in assets and earnings distribution. Since it represents ownership in a company and is typically traded in the capital markets with long-term characteristics, it fits the definition of a capital market instrument. Therefore, this option aligns with how capital markets operate and is a valid example.

Note on a missing set of options: The provided data lists the answer as 'Preferred stock.' but the answer_options field is empty, so we cannot compare this choice against other listed alternatives. In a typical exam, one would distinguish capital market instruments (e.g., common stock, preferred stock, long-term bonds) from money market instruments (e.g., Treasury bills, commercial paper, certificates of deposit) which have maturities of one year or less. This context helps validate why preferred stock is considered a capital market instrument.

If other options were present, we would evaluate them similarly against the criteria: maturity > 1 year and market where long-term securities are traded. Any option representing short-term debt or cash equivalents would be classified as a money market instrument and would be incorrect for capital market questions. Altogether, given the answer key, 'Preferred stock' is correctly identified as a capital market instrument, and the reasoning hinges on its long-term, equity characteristics and its trading in capital markets.

fin_221_120251_242735 Submit: Test 2 (Chapters 2, 3, 4, & 6)

Which of the following is an example of a capital market instrument?

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