Chapter 5: Q13DQ. (page 565)

Put an X by the security that has the feature best related to the following considerations. You may wish to refer to Table 17-4.
Common stock
Preferred stock
Bonds
Ownership and control of the firm
Obligation to provide return
Claims to assets in bankruptcy
High cost of distribution
Highest return
Highest risk
Tax-deductible payment
Payment partially tax-exempt to corporate recipient

Short Answer

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The common stock is best in case of ownership and control of the firm, the highest cost of the return, highest return, highest risk, and partially tax-exempt payment. The preferred stock is best in regard that the payment is partially tax-exempt. The bond is best as the obligation to provide a return, claim to the assets in case of bankruptcy, and tax-deductible payment.

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Types of financial instruments

The different financial instruments are cash instruments, derivative instruments, and foreign exchange instruments.The different instruments can also be categorized based on the asset class based on whether these instruments are equity or debt based.

Table showing the best security to be selected for a particular reason

	Common stock	Preferred stock	Bonds
Ownership and control of the firm	X
Obligation to provide return			X
Claims to assets in bankruptcy			X
High cost of distribution	X
Highest return	X
Highest risk	X
Tax-deductible payment			X
Payment partially tax-exempt to corporate recipient	X	X

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Short Answer

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Types of financial instruments

Table showing the best security to be selected for a particular reason

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