20-15 Equity holders absorb credit losses on the asset portfolio because liability holders are senior claimants.

Question

Quizplus · Accepted Answer

Equity holders are the owners of the company and are the last in line to receive payments in case of default. Liability holders, such as bondholders and lenders, have a higher priority and are more likely to be repaid in full. As a result, equity holders bear the risk of credit losses on the asset portfolio.

20-15 Equity Holders Absorb Credit Losses on the Asset Portfolio