Which of the following is true regarding bonds?
A)Other things equal, bondholders have greater financial security than stockholders.
B)The possibility of a bond's value increasing greatly is limited compared to stocks.
C)The legal obligation to bondholders is of higher priority than that of stockholders.
D)Higher market interest rates represent a risk to bondholders.
E)all of the above

Question

Which of the following is true regarding bonds?
A)​Other things equal, bondholders have greater financial security than stockholders.
B)​The possibility of a bond's value increasing greatly is limited compared to stocks.
C)​The legal obligation to bondholders is of higher priority than that of stockholders.
D)​Higher market interest rates represent a risk to bondholders.
E)​all of the above

Quizplus · Accepted Answer

A) Other things equal, bondholders have greater financial security than stockholders. This is because bondholders have priority claim on the company's assets and cash flows in case of bankruptcy or liquidation.

B) The possibility of a bond's value increasing greatly is limited compared to stocks. This is because bond prices are primarily influenced by changes in interest rates and credit rating of the issuer, whereas stock prices can be influenced by a wide range of factors including company performance, industry trends, macroeconomic conditions, etc.

C) The legal obligation to bondholders is of higher priority than that of stockholders. In case of bankruptcy or liquidation, bondholders have a first claim on the company's assets and cash flows before stockholders can receive anything.

D) Higher market interest rates represent a risk to bondholders. When interest rates rise, bond prices fall and vice versa. This is because newly issued bonds offer higher yields, making the existing ones less attractive.

Therefore, all of the above statements are true regarding bonds.

Which of the Following Is True Regarding Bonds