One reason that the required rate of return on shares is generally more than on interest-yielding securities is because:
A)borrowers may default on payments.
B)the returns on shares are higher than on interest-yielding securities.
C)debtholders rank ahead of shareholders in case of default.
D)shareholders rank ahead of debtholders in case of default.

Question

Quizplus · Accepted Answer

Debtholders rank ahead of shareholders in case of default, meaning that in the event of a company's liquidation, debt obligations are paid out before any returns are distributed to shareholders. This higher risk associated with shares compared to debt securities is a key reason why the required rate of return on shares is generally higher.

One Reason That the Required Rate of Return on Shares