Stockholders have priority over bondholders in the event of bankruptcy because stockholders are also owners of the company.

Question

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Bondholders are creditors who have loaned money to the company and are ensured repayment before any remaining assets are distributed among stockholders. Stockholders are owners who have invested in the company and therefore take on more risk, including the possibility of losing their investment if the company declares bankruptcy.

Stockholders Have Priority Over Bondholders in the Event of Bankruptcy