Choose wisely. There is only one correct answer to each question.
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1.
A very promising company is seeking investors. It is paying a 7% interest rate on its bonds, and it is also selling stock. Historically and statistically speaking, which would be the best bet for an investor?
The stock. Although we cannot predict the future, the stock would statistically be the best bet. Still, it is best to study the company's financials before investing.
2.
Stockholders have more exposure to the potential growth of a company than bondholders do.
True. This is due to the fact that their returns are not fixed and can increase vastly.
3.
If you were investing for your retirement that is more than 10 years away, based on historical returns in the 20th century, what percentage of the time would you have been better off by investing only in stocks versus a combination of stocks, bonds, and cash?
100%. Stocks have returned more than bonds and cash after any 10-year period. This has held true even if you had the misfortune of investing at only the market peaks.
4.
Who stands to reap the highest gains from the growth of a company?
Stockholders. Bondholders will always get limited returns. Stockholders, however, can get returns that are potentially unlimited.
5.
Well-known stocks like General Motors _______.
Can underperform the stock market. Just because a stock is well known does not mean it's a good investment. General Motors has often underperformed the stock market during the last 40 years.
