Which of the following securities has a purely fixed claim against a firm's cash flows?

• A. Corporate bond
• B. Preferred stock
• C. Common stock
• D. Stock option

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'fixed claim': A fixed claim refers to a financial instrument where the holder is entitled to a predetermined amount of cash flows, regardless of the firm's performance.
2. Analyze the characteristics of each security: Corporate bonds, preferred stock, common stock, and stock options have different claims on a firm's cash flows.
3. Corporate bond: A corporate bond represents a debt instrument where the bondholder is entitled to fixed interest payments and the repayment of principal at maturity. This is a purely fixed claim.
4. Preferred stock: Preferred stockholders receive dividends, but these are not guaranteed and depend on the firm's decision to pay them. This is not a purely fixed claim.
5. Common stock and stock options: Common stockholders have residual claims on cash flows after all obligations are met, and stock options provide the right to purchase stock at a specific price. Neither has a fixed claim.