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Multiple Choice QuestionWhich of the following would not be a good choice when investing for investment income?Multiple choice question.preferred stockcorporate bondsmunicipal bondsjust any common stock

Question

Multiple Choice QuestionWhich of the following would not be a good choice when investing for investment income?Multiple choice question.preferred stockcorporate bondsmunicipal bondsjust any common stock

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Solution

The answer is "just any common stock".

Here's why:

  1. Preferred Stock: This is a good choice for investment income because preferred stockholders have a higher claim on the company's earnings and assets than common stockholders. They receive dividends before common stockholders and these dividends are usually fixed, which can provide a steady income.

  2. Corporate Bonds: These are also a good choice because they provide regular interest payments, typically twice a year, and return the principal amount at maturity. They are considered safer than stocks because bondholders have a higher claim on the company's assets if it goes bankrupt.

  3. Municipal Bonds: These are bonds issued by a city, county, or state to finance its capital expenditures. They are a good choice for investment income because they provide regular interest payments and are often exempt from federal, state, and local taxes.

  4. Just Any Common Stock: This would not be a good choice when investing for investment income. While common stocks have the potential for high returns, they are also riskier and do not provide the steady income of dividends and interest payments that preferred stocks and bonds do. The dividends on common stocks are not guaranteed and can be cut or eliminated if the company is not doing well.

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