Question

Explain why investors purchase stocks from a company.

A. Owning stocks is risk-free because the company earns revenues, which are given to stockholders

B. Stocks are an asset that can be quickly converted to cash and cannot lose value

C. Investors have the opportunity to manage the company and affect the company's day-to-day operations

D. Owning stocks provides a portion of ownership in the company, including assets and earnings

Answer 1

Correct answer: D.

Explanation:
- D is correct because a stock represents an ownership share in a company; shareholders have a residual claim on the company’s assets and earnings (and often voting rights). Investors buy stocks to participate in profits (dividends) and potential capital gains as the company grows.

Why the others are wrong:
- A is false: stocks are not risk-free. Revenues are not automatically paid to shareholders (they may be retained or used to pay debts), and share prices can fall.
- B is false: stocks are generally liquid but can be hard to sell in some markets, and they can definitely lose value.
- C is misleading: shareholders have voting rights and can influence governance, but most individual investors do not manage day-to-day operations — that responsibility lies with the company’s management and board.