Which of the following are differences between a bond and a common stock? (Select all that...
Which of the following are differences between a bond and a common stock? (Select all that apply.)
A.
A corporation has to pay all bondholders before paying stockholders.
B.
A bond is a claim on the earnings and assets of a corporation, whereas a common stock promises to make periodic payments for a specified period of time.
C.
A corporation has to pay all stockholders before paying bondholders.
D.
A bond is a debt instrument that entitles the owner to receive periodic amounts of money until its maturity date, whereas a common stock represents a share of ownership of the institution that has issued the stock.
Homework Answers
All correct options are listed below with reasons,
A) corporation has to pay all bondholders before paying stockholders.
Once bondholders are paid, preferred shareholders are next in line. Those who own shares of common stock are last to be paid, and for this reason, common stock is generally considered to be the riskiest way to invest in a company, while bonds are considered the least risky.
D) A bond is a debt instrument that entitles the owner to receive periodic amounts of money until its maturity date, whereas a common stock represents a share of ownership of the institution that has issued the stock.
The financial asset which holds ownership rights, issued by the company is known as common Stocks. Bonds are the debt instrument issued by the companies to raise capital with a promise to pay back the money after some time along with interest.
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