What are the major differences between shareholders and lenders?
A) The risks of the business they are willing to assume and the amount they are investing.
B) The kinds of activities they are willing to finance and the term for which they are investing capital.
C) The risks of the business they are willing to assume and the term for which they are investing capital.
D) The kinds of businesses they are willing to finance and the amount they are investing.

Question

Quizplus · Accepted Answer

Shareholders are typically willing to assume higher risks associated with the business's performance since their returns (dividends and capital gains) are directly tied to how well the business does. Lenders, on the other hand, are concerned with the business's ability to repay the borrowed amount plus interest, making the term of investment a significant difference. Shareholders invest for potentially indefinite periods, benefiting from long-term growth, while lenders have a fixed term after which their principal and interest are to be repaid.

What Are the Major Differences Between Shareholders and Lenders