Question

List the following stocks and bonds in order from lowest default risk to highest default risk:

Bond in a stable foreign government
Preferred stock
Common stock

A. foreign government bond, common stock, preferred stock

B. foreign government bond, preferred stock, common stock

C. common stock, preferred stock, foreign government bond

D. preferred stock, common stock, foreign government bond

Answer 1

A foreign government bond is issued by a Country that needs money and borrows it from the investors, therefore, you would become a creditor of the government/Country.

Stocks represent part of the ownership of a corporation, but preferred stockholders get paid before the common stockholders, especially in case of insolvency of the corporation.

Therefore, the least risky investment is a bond of a foreign government, while the riskiest investment is a common stock.

Hence, the correct answer is B. foreign government bond, preferred stock, common stock.