Question

Nina wants to buy and operate an ice-cream truck but doesn't have the financial resources to start the business. She borrows $5,000 from her friend Max, to whom she promises an interest rate of 7%. Then, she gets another $10,000 from her friend David, to whom she promises a third of her profits. What best describes this situation?

A. Max is a stackholder, and Nina is a bondholder
B. Max is a stackholder, and David is a bondholder
C. David is a stackholder, and Nina is a bondholder
D. Davidis a stackholder, and Max is a bondholder

Answer 1

Option D. David is a stockholder, and Max is a bondholder

Step-by-step explanation:

The reason is that the David is has $10000 worth of ownership in the Nina's business which gives him right to receive share of the profit and risk of an equal share of loss as well. These are the characteristics of shareholders hence he is a stockholder.

On the other hand, Max is a bondholder because he owns a bond in th company which gives him a right to receive to a fixed share of annual return irrespective of its return. These are the characteristics of bondholders hence he is a bondholder.