Explain why investors purchase stocks from a company. (1 point)
A. Owning stocks is risk-free because the company earns revenues, which are given to stockholders.
B. Investors have the opportunity to manage the company and affect the company's day-to-day operations.
C. Stocks are an asset that can be quickly converted to cash and cannot lose value.
D. Owning stocks provides a portion of ownership in the company, including assets and earnings.
D. is the only one that makes any sense.
The B choice applies to Elton Musk but few others.
The correct answer is D. Owning stocks provides a portion of ownership in the company, including assets and earnings.
Investors purchase stocks from a company primarily to acquire a portion of ownership in that company. By owning stocks, investors become shareholders and have the potential to benefit from the company's success through dividends and capital appreciation. Additionally, owning stocks grants investors certain rights and privileges, such as voting rights in board meetings and the ability to participate in decision-making processes. However, owning stocks also involves risks as the value of the stocks can fluctuate depending on market conditions and the company's performance.
The correct answer is D. Owning stocks provides a portion of ownership in the company, including assets and earnings.
Investors purchase stocks from a company primarily because they want to become partial owners of that company. By owning stocks, investors are entitled to a portion of the company's assets and earnings. This means that if the company performs well and generates profit, stockholders have the potential to earn dividends, which are a portion of the company's earnings distributed to its shareholders.
Furthermore, owning stocks allows investors to have a say in certain company matters, such as voting on important decisions, like electing the board of directors. However, it is important to note that the level of influence individual shareholders have in a company's day-to-day operations may vary depending on the number of shares they hold.
Option A, "Owning stocks is risk-free because the company earns revenues, which are given to stockholders," is not accurate. Investing in stocks always carries a certain degree of risk as the value of stocks fluctuates based on market conditions and the company's performance. Although a well-performing company may generate revenues, there is no guarantee that these revenues will always be distributed to stockholders.
Option B, "Investors have the opportunity to manage the company and affect the company's day-to-day operations," is not typically the case. While shareholders can influence major company decisions through voting, they do not usually have direct control over day-to-day operations. That responsibility is typically entrusted to the company's management team.
Option C, "Stocks are an asset that can be quickly converted to cash and cannot lose value," is also not accurate. Stock values can decrease or increase depending on various factors, and there is no assurance that stocks can be quickly sold at any desired price. The value of stocks is subject to market forces and can fluctuate significantly.