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Stocks and Bonds Quiz?


This is one of those questions where you go back into the bok and search the whole thing... well I coulnd't find it. Would somebody please help me!? Even a hint would be appreciated.

A legal claim against a firm that usually entitles the owner of the claim to receive a fixed annual payment, plus a lump-sum payment at some future date, is known as:

a reinvestment coupon.

a share of preferred stock.

a bond.

a share of common stock

It could be a bond or a preferred stock.
My initial reaction is the Bond, but there is a key word in the question that raises a red flag: "Usually."
Preferred Stocks act something like bonds, but you aren't promised the interest payments. With Bonds they are absolutely required.
I hate trick questions like this, cause it could literally be both. For arguments sake, just take the Bond portion, but if it is wrong and your teacher tries to explain why you were wrong, explain to him/her that preferred stocks operate just like Bonds and they have the same legal entitlements. Annual Bond payments can always be defaulted on, as this is the risk of investing, but they are legally promised, whereas the Preferred Stocks ARE NOT.
So stick with Bond, but understand how the Preferred Stock relates to this. Think of the Preferred as a Hybrid between a Bond (as it is too is a debt security) and a Stock (as they are issued like stocks, usually with a convertibility option, and 'usually' have shareholder rights-though they are not required to).

what??

Bond.

Bond: In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity

Bond

Traditionally, a written unconditional promise to pay a specific principal sum at a determined future date, and interest at a fixed or determinable rate on fixed dates. Increasingly, the promise to pay has become conditional, and the principal, interest, and payment dates have become contingent in real world instruments

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