Which of the following statements is true about investing in stocks and bonds?
A) Issuers of stocks can default on their stock obligations.
B) Investing in stocks involves less risk because the future payments are less uncertain.
C) In case of bankruptcy, bondholders get paid ﬁrst ahead of stockholders.
D) Bankruptcy occurs when the issuing ﬁrm is unable to fulﬁll its stock obligations.

Question

Quizplus · Accepted Answer

Bondholders have priority over stockholders in case of bankruptcy, and are more likely to be paid back first in the event that the issuing company goes bankrupt. Issuers of stocks can default on their stock obligations, making investing in stocks riskier than investing in bonds. The future payments for stocks are also more uncertain, making it harder to predict potential returns. Bankruptcy does not occur solely because of an inability to fulfill stock obligations.

Which of the Following Statements Is True About Investing in Stocks