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, bond-holders are prioritized over stockholders by a company.
Which one of the following is correct in respect of the above statements?
Show answer
Answer: A. Statement II is correct: bondholders lend money to a company, while shareholders own it. Statement III is correct: when a company repays or is wound up, bondholders are paid before shareholders. Both explain Statement I: lenders get fixed, priority claims, so they face lower risk than owners. So option A.
Watch for: Option B reverses the cause and effect: lower risk is the result of being lenders, not the reason for it.
Why the other options are wrong
- B. Wrong because Statement II does not explain Statement I in reverse; the option has the logic the wrong way round and ignores Statement III.
- C. Wrong because both Statements II and III are correct.
- D. Wrong because both Statements II and III are correct.
Source to check: NCERT Class 12 Business Studies Part II, chapter on Financial Markets; NCERT Class 12 Accountancy (Shares and Debentures)
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.