Products & Their RisksQuestion 57 of 398
Which statement about the risk-return relationship of common stock versus corporate bonds of the same company is generally TRUE?
a.Common stock typically carries higher risk and higher potential return than the company's bonds
b.Bonds always outperform the company's stock
c.Common stock has a guaranteed return, unlike bonds
d.Bonds rank behind common stock in a bankruptcy
Explanation
Common stock is a residual claim with no fixed payment and last priority in bankruptcy, so it carries higher risk and higher potential return than the same company's bonds. Bonds do not always outperform, stock returns are not guaranteed, and bonds rank ahead of stock in bankruptcy.
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