by Q. Consider the following statements:
UPSC Civil Services Examination (Prelims) 2025 – General Studies Paper I
Which one of the following is correct in respect of the above statements?
(a) Both Statement II and Statement III are correct and both of them explain Statement I
(b) Both Statement I and Statement II are correct and Statement I explains Statement II
(c) Only one of the Statements II and III is correct and that explains Statement I
(d) Neither Statement II nor Statement III is correct
Answer: (a) Both Statement II and Statement III are correct and both of them explain Statement I
Explanation:
Statement I is correct: Bondholders receive fixed interest and are prioritized during liquidation, making their investment less risky compared to stockholders who bear residual risk.
Statement II is correct: Bondholders are creditors, not owners. Stockholders (shareholders) are partial owners.
Statement III is correct: In liquidation or repayment, companies pay bondholders before shareholders.
Thus, II and III together explain why bondholders face lower risk.
