1) The usual collateral position of Bondholders (Lenders) versus Equity investors

One can receive good returns from both debt and equity investments. They have different historical returns and risk levels. In the case of bondholders, the usual collateral position is held in liquid accounts. Debt investments include bonds and mortgage (Whittington, 2014). They specify fixed payments including interest to investors. Bonds only represent a financial interest. Moreover, with liquid accounts, it is easy for lenders to get rid of their money if a need arises. Conversely, regarding equity investors, they demand a portion of ownership when they invest in a company. Equity investments represent an ownership interest in a company (Whittington, 2014). The most popular equity investment is the common stock.

2) Why common stockholders can demand a higher rate of return than lenders

Upon liquidation of the company, common stockholders are the last in line to receive earnings and distribution, and that is why they can demand a higher rate of return. Since they are last to be paid, they can debate on what they should receive. Their returns include dividends and appreciation in the value of stock (Whittington, 2014). Moreover, returns of common stockholders are unpredictable.

3) Why you would suggest debt (or equity) financing

I would suggest debt financing because it entails borrowing of money and it allows borrowers to repay with interest. On the other hand, with equity financing, other investors have a say in the operations of the company since they have partial ownership.

References

Whittington, R. (2014). Wiley CPAexcel exam review 2014 study guide. Hoboken, New Jersey: John Wiley & Sons.

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