{"id":2854,"date":"2026-04-22T20:01:48","date_gmt":"2026-04-22T14:31:48","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=2854"},"modified":"2026-04-22T20:01:50","modified_gmt":"2026-04-22T14:31:50","slug":"consider-the-following-statements-13","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/prelims\/consider-the-following-statements-13","title":{"rendered":"Consider the following statements:"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>Statement I:<\/strong>&nbsp;As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Statement II<\/strong>: Bondholders are lenders to a company, whereas stockholders are its owners.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Statement III:<\/strong>&nbsp;For repayment purposes, bondholders are prioritised over stockholders by a company.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Which one of the following is correct in respect of the above statements?&nbsp;<\/strong>&nbsp;&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list mcq\">\n<li>Both Statement II and Statement III are correct and both of them explain Statement I\u00a0\u00a0\u00a0<\/li>\n\n\n\n<li>Both Statement I and Statement II are correct and Statement I explains Statement II\u00a0<\/li>\n\n\n\n<li>Only one of the Statements II and III is correct and that explains Statement I\u00a0\u00a0\u00a0<\/li>\n\n\n\n<li>Neither Statement II nor Statement III is correct\u00a0\u00a0<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (a) Both Statement II and Statement III are correct and both of them explain Statement I<\/strong><\/p>\n<\/blockquote>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Companies raise<strong>\u00a0long-term funds either by issuing bonds or by selling stocks<\/strong>.\n<ul class=\"wp-block-list\">\n<li>When a company\u00a0<strong>issues bonds, it is essentially borrowing money<\/strong>\u00a0from investors, who are known as bondholders.<\/li>\n\n\n\n<li>On the other hand, when a\u00a0<strong>company issues stocks, it is selling ownership shares\u00a0<\/strong>to investors called stockholders (or shareholders).\u00a0<\/li>\n\n\n\n<li><strong>Regarding returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>A\u00a0<strong>stockholder<\/strong>\u00a0is considered as the\u00a0<strong>owner<\/strong>\u00a0of the company with equity rights, while a\u00a0<strong>bondholder<\/strong>\u00a0is a\u00a0<strong>creditor<\/strong>\u00a0who lends money and<strong>\u00a0holds no ownership in the company.<\/strong><\/li>\n\n\n\n<li><strong>Bondholders are given repayment priority over stockholders\u00a0<\/strong>because bonds are issued for a fixed term with a predetermined interest rate and are repayable at maturity. In contrast, capital from shares is not typically returned during the company\u2019s lifetime, and returns to stockholders vary based on the company\u2019s profits.<\/li>\n\n\n\n<li>Thus,\u00a0<strong>bondholders are considered as the relatively lower risk than stockholders because bondholders have no ownership stake; they have a legal right to fixed repayments and are prioritised over stockholders<\/strong>, who are the owners of the company and receive returns based on the profit of the company. Hence, Option a is correct:\u00a0 Both Statement II and Statement III are correct, and both of them explain Statement I<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Statement I:&nbsp;As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.&nbsp;&nbsp;&nbsp; Statement II: Bondholders are lenders to a company, whereas stockholders are its owners.&nbsp;&nbsp;&nbsp; Statement III:&nbsp;For repayment purposes, bondholders are prioritised over stockholders by a company.&nbsp;&nbsp;&nbsp; Which one of the following is correct in&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[3,1],"tags":[38],"years":[63],"class_list":["post-2854","post","type-post","status-publish","format-standard","hentry","category-prelims","category-upsc","tag-indian-economy","years-63"],"acf":[],"taxonomy_info":{"category":[{"value":3,"label":"Prelims"},{"value":1,"label":"UPSC"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":63,"label":"2025"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1},{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2854","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=2854"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2854\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=2854"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=2854"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=2854"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=2854"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}