Which of the following statements is true about investing in stocks and bonds?

Question

Quizplus · Accepted Answer

In case of bankruptcy, bondholders have a higher priority of being paid compared to stockholders. This is because bonds are considered debt and have a predetermined payment schedule, while stocks represent ownership in a company and do not have a guaranteed payment schedule. Thus, investing in bonds involves less risk in terms of default and bankruptcy. Option A is incorrect as issuers of bonds can default, not stocks. Option B is incorrect as investing in stocks involves more risk compared to bonds as future payments are uncertain. Option D is incorrect as bankruptcy occurs when the issuing firm is unable to fulfill its debt obligations, including to bondholders, not stock obligations.

Which of the Following Statements Is True About Investing in Stocks