CAF-7 · Chapter 9 · Question 7 of 15
Which TWO factors primarily justify why an equity investment is considered riskier than an investment in the debt capital of the exact same company?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Dividends are not a legal obligation and ordinary shareholders rank last in the event of liquidation
Explanation
Equity is riskier because a company is not legally forced to pay dividends if profits are low, and if the company goes bankrupt, equity holders are paid only after all secured and unsecured creditors have been settled.
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