Increasing debt only increases the risk of bondholders and does not affect the risk of stockholders.

Question

Quizplus · Accepted Answer

Increasing debt increases the financial risk of a company, which affects both bondholders and stockholders. Bondholders face the risk of default if the company is unable to make interest and principal payments on its debts, while stockholders face the risk of lower earnings and dividends if the company's profits are affected by the increased debt burden.

Increasing Debt Only Increases the Risk of Bondholders and Does