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Identify the primary reason for investing in equity securities.
Answer to Problem 1SSQ
a. Receiving dividend payments.
Explanation of Solution
Equity securities are the common stock issued by the other company. Investing in those securities is referred as investing in equity securities.
a. Receiving dividend payments: for investing in the equity securities, the investor will get dividend. Receiving the dividends is one of the primary reasons for investing in equity securities. Hence, it is the correct option.
b. Acquiring debt of competing company: In equity investments, investor will get common stock (shares), not the debt securities like bonds and debentures. Hence, it is the incorrect option.
c. Earning interest revenue: the investor of equity securities will earn the dividend not the interest. Hence, it is incorrect option.
d. Deducting dividend payments for tax purposes: Divided payments are not allowed for deduction for tax purpose. Hence, it is incorrect option.
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