F97MT.10
10.Before common stock holders can get any money, all other claimants must be paid. That is the disadvantage of their position as residual claimant. What is the advantage? (5 pts)
The advantage is that in the good times, the spoils go to them! That is, if the company does really well, the bondholders don’t get any extra money, but the stockholders do. So while they feel the pain in the bad times, their compensation is that they get rich in the good times.