Consider the following statements: Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders. Statement II: Bondholders are lenders to a company whereas stockholders are its owners. Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company. Which one of the following is correct in respect of the above statements?
Explanation
Bonds are debt instruments, while stocks represent ownership. Bondholders earn fixed interest and are repaid before stockholders, making them relatively less risky investors.
Statement I: Correct Bondholders face lower risk as they receive fixed returns and are prioritized during repayment over stockholders.
Statement II: Correct Bondholders are lenders to the company; stockholders are owners.
Statement III: Correct In case of liquidation, companies repay bondholders before stockholders.