UPSC CSE Prelims
Question 38
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 in respect of the above statements?
View correct answer and explanation
Correct answer: A
Correct Option: A (Both Statement II and Statement III are correct and both of them explain Statement I)
Explanation: Bondholders provide debt financing and generally have contractual interest and senior repayment claims. Shareholders own residual equity and rank behind creditors in insolvency; both differences explain their higher investment risk.
Statement / Pair / Item-wise Analysis:
I: True-bonds are generally less risky than ordinary shares, though not risk-free.
II: True-bondholders are creditors, shareholders owners.
III: True-creditors are paid ahead of equity holders.
Option-wise Analysis:
A. Correct-this matches the facts and the item-wise assessment above.
B. Incorrect-this does not reflect the actual truth values or explanation relationship of the statements.
C. Incorrect-this misstates how many supporting statements are true and explanatory.
D. Incorrect-the item analysis identifies at least one supporting statement as valid.