Which statement best describes equity finance?

Which statement best describes equity finance?

• A. Investors buy a share in a firm hoping the share price will increase and companies will deliver returns via dividends
• B. Investors lend money to the firm and receive fixed interest
• C. Equity finance involves debt securities with fixed coupon
• D. Companies raise capital through derivatives

Answer: (A)

Equity finance means raising capital by selling ownership shares in the company. Investors become part-owners and their returns come from two sources: any dividends the company pays and any increase in the share price if the stock appreciates. There’s no fixed repayment or interest, so the investors share the risk and reward with the company’s performance. This matches the described idea: investors buy a share in a firm hoping the share price will increase and returns may come via dividends. The other options describe different funding forms: lending money for fixed interest (debt), debt securities with fixed coupons (bonds), or raising capital through derivatives (not actual equity funding).

Equity finance means raising capital by selling ownership shares in the company. Investors become part-owners and their returns come from two sources: any dividends the company pays and any increase in the share price if the stock appreciates. There’s no fixed repayment or interest, so the investors share the risk and reward with the company’s performance.

This matches the described idea: investors buy a share in a firm hoping the share price will increase and returns may come via dividends. The other options describe different funding forms: lending money for fixed interest (debt), debt securities with fixed coupons (bonds), or raising capital through derivatives (not actual equity funding).