ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The stocks help investors earn a higher rate of return
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To raise money to grow the company
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To distribute the risk of bankruptcy across more investors
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To increase greater awareness of the company
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Detailed explanation-1: -Companies issue shares to raise money from investors who tend to invest their money. This money is then used by companies for the development and growth of their businesses.
Detailed explanation-2: -To raise money, corporations will issue stock by selling off a percentage of profits in a company. Issuing stock can also be referred to as equity financing, because the shareholder gives the company money in exchange for a portion of voting rights and profits of the company.
Detailed explanation-3: -Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stick with stocks over long periods of time, say 15 years, generally have been rewarded with strong, positive returns.
Detailed explanation-4: -For businesses, issuing common shares is an important way to raise capital to fund expansion without incurring too much debt. While this dilutes the ownership of the company, unlike debt funding, shareholder investment need not be repaid at a later date.
Detailed explanation-5: -People primarily invest in common stock because they want to share in a company’s growth. As its earnings and profits increase, so will the price of its stock shares.