Firms: Bonds & Shares

A public limited company plans to issue new bonds. For the existing shareholders, which of the following is an advantage of issuing bonds instead of shares?

• The accounts of the company need not be disclosed to the public.

• They can get back their capital first if the company winds up.

• The interest paid to the bondholders is lower than the dividend paid to the shareholders.

• Their power of control over the company will not be weaken.

From the viewpoint of investors, which of the following is an advantage of buying shares over bonds?

• The return of shares is higher than that of bonds.

• The returns of shares is more certain than that of bonds.

• Lower risk than bond.

• Shareholders have voting rights in AGM while bond holders do not.      

From the viewpoint of investors, which of the following is an advantage of buying bonds over the shares?

• The return of bonds is higher.

• Bonds can be sold on the stock market while shares cannot.

• The market price of bonds is fixed.

• Bondholders have a prior right to get their money back when the company winds up.

The shareholders of a public limited company is different from the bondholders in that

• the return of shareholders is lower

• the return of shareholders is more stable

• shareholders have a prior claim on the income of the company.

• shareholders are owners of the company while bondholders are not.