Question

Which of the following is a difference between common stock and bonds? Select one: a) Stocks have a stated maturity but bonds do not. b) Bondholders have a voice in management; common stockholders do not. c) Bondholders have a senior claim on assets and income relative to stockholders. d) Dividend paid to stockholders is tax-deductible but interest paid to bondholders are not.

Answer 1

Answer:

The answer is: C) Bondholders have a senior claim on assets and income relative to stockholders.

Explanation:

A stock is a share in the ownership of a corporation, while a bond is a form of debt that the corporation issued promising to repay it at some point in the future (maturity date).

If the corporation goes bankrupt, bondholders have higher priority to claim any residual assets. Bondholders are paid interest regularly while stockholders may or may not receive dividend payments.