Explain whether an investor would be better off being an investor in a corporation’s common stock or in the firm’s bonds in the event the firm faces bankruptcy and liquidation through a “fire sale” auction.
In case of bankruptcy and liquidation, the order of preference in which claims are settled are :
Therefore, it is better off being an investor in a corporation’s bonds in case of bankruptcy and liquidation because bondholder's claims are settled before the claims of common stockholders.
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