Capital providers include both equity and debt investors. Purchasing 100 shares of IBM common stock is an example of an equity investment. Bank loans and extensions of credit represent debt investments.

a. What are the basic differences between equity and debt investments? Which kind of investment entails greater risk? Which has the potential for greater returns? Why?

b. What kind of financial information would you consider when deciding whether or not to purchase IBM common stock? Would you consider the same kind of informa¬ tion if you were a banker considering a loan to IBM?