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Consider the following statements: Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders. Statement II: Bondholders are lenders to a company whereas stockholders are its owners. Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company. Which one of the following is correct?

UPSC · 2025 · Economy
Question:
Consider the following statements: Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders. Statement II: Bondholders are lenders to a company whereas stockholders are its owners. Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company. Which one of the following is correct?

Options

Both Statement II and Statement III are correct and both of them explain Statement I
Both Statement I and Statement II are correct and Statement I explains Statement II
Only one of the Statements II and III is correct and that explains Statement I
Neither Statement II nor Statement III is correct
Answer: Both Statement II and Statement III are correct and both of them explain Statement I

Explanation:
Bondholders are creditors who receive fixed interest and are repaid before stockholders. Hence, they face lower risk compared to equity investors.

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