Question

investors see better long-term prospects for Amazon 3 Because equityholders are the last to receive any distribution of asset as a result of bankruptcy proceedings, they expect O fixed dividend payments warrants to be attached to the stock issue greater returns from their investment than the return that bondholders expect O all profits to be paid out in dividends

Answer 1

Equity stockholders are the investors who shares of the company and therefore are owners of the company which is restricted to the percentage of shares owned by equityholders.

They have voting power in the meetings

The equity stockholders receive residual income from the company and therefore have higher return due to higher risk on the fund invested.

The equity investment is an risky investment and so the return is higher.

The equity shareholders do not receive fixed dividend payment

The distribution of dividend from profit is the decision of board of directors and they may not distribute all of the profits as dividend.

Therefore, since equity shareholders are the last to receive any distribution in case of bankruptcy proceedings from the assets of the company they expect greater

return from their investment than the return that bondholders expect due to higher risk.

The equity shareholders should be compensated for higher risk by way of higher return.

Hence, the 3rd option is correct option which is greater returns from their investment than the return that bondholders expect