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?

(a) Both Statement II and Statement III are correct and both of them explain Statement I

(b) Both Statement I and Statement II are correct and Statement I explains Statement II

(c) Only one of the Statements II and III is correct and that explains Statement I

(d) Neither Statement II nor Statement III is correct

Ans-a

Explanation

Bond 

A bond is a contract between the borrower (the issuer) and the lender (the investor). In other words, a bond allows a company to raise money from a large number of investors by breaking up the total amount borrowed into small, equal components. Investors can subscribe to these bonds as per their investible surplus.

Bondholders are providing capital to a company in return for interest payments. Bonds inherently carry less risk compared to stocks..

Stocks

Stocks and shares represent partial ownership in a business. Each shareholder’s ownership stake is proportional to the number of shares they own relative to the total issued shares of the company.

Stocks are financial securities representing ownership in companies , Stocks of company gets divided into shares i.e . a unit  of stock is share . 

Investing in stocks offers shareholders the potential for profit through capital appreciation and income through dividends, although it does carry a higher level of risk.

Hence Both Statement II and Statement III are correct and both of them explain Statement I

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