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there is less demand for stock than for bonds.
there is greater demand for stock than for bonds.
there is more systematic risk involved for the common stock.
there is a market premium required for bonds.
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there is more systematic risk involved for the common stock.
There is more systematic risk involved for the common stock. Expected return will be higher due to high risk.
>>>>>>> there is more systematic risk involved for the common stock.
I agree that answer C is right one but let me give you wide explanation for the point
- debt for any co. either from
1- Banks as loan
2- public community as bonds, preferred stock , common stock
the diff. between this three as
A- bonds it is issued by co. which has fixed interest rate or called also coupon rate & its paid at specific time as its written in coupon also if any bankruptcy bondholders have priorities
B-preferred stock which has interest rate "dividend rate" higher than rate of bond but it is not paid if there's no dividend this year- for that its risky more than bond also has second priority after for bankruptcy
C-common stock has not any interest rate also its not be paid unless there's dividend this year also has third priority after bonds & preferred holders if any bankruptcy happen for that it more risky and this is the clear reason make common stock holders ask for highest interest rate more than other which is called also "RRR" required rate of return " its not be written but its known substantially cause if conmen stock holders fined themselves have lower interest rate simply they sell their stocks an that lead to lot of losses for the co.
Dear experts, agree with you all reading the question and answer, because I honestly didn't know, so I have learned something
My answer is option (C) there is more systematic risk
Answer will be there is more systematic risk involved for the common stock <<<<<<<<<<<
common stocks are got less priority than the debt of the company with reference to payment in case of winding up/ bankruptcy, so more risk involved with stocks.
the answer is -------there is more systematic risk involved for the common stock.
Agree with choice of the experts
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there is more systematic risk involved for the common stock.
