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?
Statement I is correct: Bondholders are generally at lower risk than stockholders because they receive fixed interest payments and have priority in repayment during liquidation, whereas stockholders face higher risk due to residual claims on profits and assets. Statement II is correct: Bondholders are creditors (lenders) to the company, while stockholders are owners (shareholders) who hold equity stakes. Statement III is correct: In case of liquidation or repayment, bondholders are prioritized over stockholders, as debt obligations must be settled before equity holders receive any remaining assets.