Final answer:
Lanni exchanges one financial asset for another by selling stock and uses part of the proceeds to pay off a financial liability, thus extinguishing the loan.
Step-by-step explanation:
When Lanni sells 2,500 shares of stock for $125,000, she is exchanging one financial asset for another. In paying off the IOU with $50,000, Lanni is exchanging financial liabilities. The loan is extinguished in the transaction, since it is retired when paid.
A financial asset represents a claim on the property or the income of a firm or entity, such as stocks. When investors purchase shares, like in Wal-Mart for $45 and later sell them for $60, they make a capital gain, which is the increase in the value of the asset from the purchase to the sale. This gain is why investors are interested in buying stocks.
By using the proceeds from the sale of one financial asset to pay off a financial liability, like a bank loan, Lanni is simplifying her financial situation. The previous ownership of the stocks becomes cash, which she then uses to cancel the debt. The end result is fewer financial obligations and a clearer financial picture.