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Ch.1 · Savings vs Investment Avenues · easy

An investor buys equity shares of a company. This means the investor:

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EXPLANATION

Equity shareholders are part-owners of the company. They participate in profits through dividends (discretionary) and capital appreciation. They have residual claim — paid after all creditors — and bear the full risk of the business.

A.Has lent money to the company and will receive fixed interest

B.Has become a part-owner of the company and is entitled to residual profits [✓ Correct]

C.Is guaranteed a minimum return by the company's board of directors

D.Will receive the face value of shares back after 5 years

EXPLANATION

Equity shareholders are part-owners of the company. They participate in profits through dividends (discretionary) and capital appreciation. They have residual claim — paid after all creditors — and bear the full risk of the business.

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