SIE Understanding Products and Their Risks Question 2: Answer and Explanation

Question: 2

Which of the following is considered a debt security?

• A. Common stock
• B. Convertible preferred stock
• C. Nonconvertible debenture
• D. Put on a warrant

Correct Answer: C

Explanation:

C: A nonconvertible debenture is a debt security that cannot be converted into an equity security. Choices A and B represent ownership and therefore are included in the category of equity securities. Choice D represents an option that provides the opportunity, but not the obligation, to sell a warrant, which is an equity security.