Question

Which best explains what it means for a company to sell its stock?

Investors are lending the company money which the company must pay back later with interest.

Investors are buying a share of the loans the company has taken from banks. As the loans are repaid, the investor will profit.

Companies are trading shares of ownership with a business competitor, so that both businesses cannot have too great a loss.

Companies are selling shares of ownership and a share of its profits in exchange for money it can use to operate their business.

Answer 1

Answer: D, Companies are selling shares of ownership and a share of its profits in exchange for money it can use to operate their business.

Answer 2

The correct answer is: "Companies are selling shares of ownership and a share of its profits in exchange for money it can use to operate their business."

Shares are fractions of a corporation's social capital, which is equally divided in many pieces. Each of these shares is traded in stock markets. When investors buy stock from a company, they become owners of the company in the same proportion that the number of shares bought represents of the total social capital. Stockholders will make profit by receiving, every year, a percentage of the total profit generated by the company. The amount received is called dividend.

Moreover, stock investors can also make money by selling the shares at a higher price than the buying price. If the company functions properly and keeps on generating profits, the value of its stock in the financial markets will rise.