If a business fails to make a profit
A)it must still pay a dividend.
B)you would probably be better off holding a bond issued by the business than holding stock issued by the business.
C)you would probably be better off holding stock issued by the business than holding a bond issued by the business.
D)its shareholders may end up being liable for much more than they have invested in the business.

Question

Quizplus · Accepted Answer

When a business fails to make a profit, bondholders are generally in a better position than stockholders because bonds typically have fixed interest payments that the company is obligated to pay before distributing profits to shareholders. If the company is not profitable, it may still be required to make these interest payments to bondholders, whereas dividends to shareholders can be reduced or eliminated. Additionally, in the event of bankruptcy, bondholders are higher in the hierarchy of claims and are more likely to recover some of their investment, whereas stockholders are last and may lose their entire investment.

If a Business Fails to Make a Profit