Which of the following best describes the financial link between stockholders and bondholders? a. The action of stockholders cannot affect the financial position of bondholders.
b. The action of stockholders can increase the risk of a business which will affect the financial position of bondholders.
c. The action of bondholders can increase the risk of a business which will affect the financial position of stockholders.
d. The actions of stockholders and bondholders are independent.
e. Both a. and c. are correct.

The correct answer is the option E: Both a. and c. are the correct.

Explanation:

On the one hand, the stockholders of a company are those who buy a stock or share of the company in order to make money by investing in that stock. When an investor owns that stock he can decide between keeping it in order to obtain dividends later or to sell it by a higher price as well later.

On the other hand, a bondholder of a company is the person who decides to buy a bond from the company and that action focus on the lending of money from the boldholder to the company who agrees to return that money later with interest. In a case of bankrupcy, bondholders are the ones who are paid first. The fact that they choose how much to lend and can pressure the company to return the money is why their actions can affect the stockholders.

answer; /// i believe that the correct answer is (b) money set aside for emergency repairs;