UPSC Prelims 2025 · Question 37 of 100
UPSC Prelims 2025 question on Bondholders Returns Priority
- ExamUPSC CSE
- Year2025
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyMedium
- TypeAssertion
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?
Show answer
Answer: A. Both Statement II and Statement III are correct and both of them explain Statement I
Analysis
Both Statement II and Statement III are correct and both explain Statement I → Option (a).
Statement by statement
Statement I – CORRECT: Bondholders have fixed interest payments and are paid before shareholders, making their investments less risky. Hence Statement I is correct.
Statement II – CORRECT: Bondholders lend money to the company (debt), while stockholders own equity (a share in ownership). Hence Statement II is correct and explains why bondholders are at lower risk — they are creditors, not equity holders.
Statement III – CORRECT: For repayment purpose, bondholders are prioritized over stockholders by a company. In liquidation or bankruptcy, bondholders are paid before shareholders. Hence Statement III is correct and also explains why bondholders carry lower risk.