Question

In general, investors prefer compounding interest on their investments instead of simple interest. True False Bond holders have first claim on assets in the event of a bankruptcy, so they are less risky than common stock. True False An asset or stock with a beta less than 1.0 means the stock is more risky than the market in general. True False

Answer 1

1. Investors always prefer to earn compound interest vs simple interest as it willl lead to earning return over principle as well accumulated returns. It will hence magnify Overall return so This Statement Is True as Investors prefer compounding interest.

2. This Statement is also True as Bondholders have a priority on claiming assets of the company in an event of liquidation as they are creditors to the company while equity Shareholders are treated as the owner of the company.

3. This Statement is false as beta of lesser than 1 means that the stock is less volatile and less fluctuating then the market so it could mean less risk than the overall Market.

So given Statement is FALSE as beta of more than 1 is more Volatile and beta of lesser than 1 mean less volatile.