Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total.

Question

BlackTom AI · Accepted Answer

Equity issuance is a relatively small portion of external finance for nonfinancial U.S. firms; stocks account for about 11% of total external funds.

1) Relevant knowledge points and concepts
- Firms obtain funds internally (retained earnings) or externally (debt and equity). External sources include bank loans, bonds, commercial paper, trade credit, and stock (equity) issuance.  
- Empirical evidence in corporate finance shows debt financing dominates external funds; net new equity issues are comparatively modest — typically in the low double digits percent of total external financing.

2) Step-by-step reasoning process
- Represent total external funds as 100 units to compare options. External funds are largely composed of loans and bonds plus smaller pieces from equity and other short-term instruments.  
- Historical and textbook summaries report stock (equity) issuance as a small share of that total (roughly one-tenth).

3) Intermediate steps (calculation-style comparison)
- Assume total external finance = 100 units.  
- If stocks were 11% → stocks = 11 units.  
- Compare alternatives: 2% → 2 units (implausibly tiny relative to observed equity issuance); 20% → 20 units (too high given dominance of debt); 40% → 40 units (contradicts observed dominance of debt instruments).

4) Why the correct answer is correct
- Empirical data and standard finance texts state that equity issuance comprises about 10–12% of external funding for nonfinancial firms in the U.S. This aligns with answer c (11%). The dominance of debt and retained earnings makes an ~11% share for stocks consistent and well-documented.

5) Why the other options are incorrect
- a. 2% is too small compared with observed equity issuance over time.  
- b. 40% is far too large; it would imply equity nearly equals debt sources, which contradicts data.  
- d. 20% overstates equity’s role (about double the empirically observed share).

6) Conclusion
Therefore, the correct choice is c. 11%, which matches the provided answer.

Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total.Single choice

Similar Questions

I acknowledge that my venture has NOT raised equity capital in excess of $50,000 from sources other than the members of our student team or friends and families before the current academic year (Fall 2025 - Spring 2026).

Expansionary fiscal policy in an open economy with a floating exchange rate will likely:

Contractionary monetary policy in an open economy with a floating exchange rate will likely:

Contractionary monetary policy in an open economy with a fixed exchange rate will likely ____ a trade surplus.

Which is expansionary monetary policy?

Which is contractionary fiscal policy?

Which is expansionary fiscal policy?

What would raise aggregate supply (AS)?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler