Which statement best describes the difference between stocks and bonds in terms of cash flows and risk?

• A. Bonds provide fixed coupon payments and principal repayment, with higher risk.
• B. Stocks provide residual claims with dividends and capital appreciation; bonds provide fixed coupon payments and principal repayment, with generally lower risk and priority over equity.
• C. Stocks offer fixed returns while bonds offer variable, risky payments.
• D. Stocks have priority in bankruptcy.

Answer: (B)