What do debt holders typically face regarding risk and return?

Debt holders typically face low risk and low return. This is because debt instruments, such as bonds or loans, are structured to provide fixed periodic payments and return of the principal amount at maturity, making them less volatile compared to equity investments.

The fixed nature of these returns is designed to provide a stable income stream, but it does not generally offer the potential for high returns, which are typically associated with higher-risk investments such as stocks. In comparison to equity holders, who may experience significant fluctuations in their investment value, debt holders are compensated with a lower risk profile and correspondingly lower potential returns.

This characteristic makes debt an attractive option for risk-averse investors who prioritize capital preservation and steady income over the prospect of large gains. Other choices would suggest levels of risk or return that do not align with the typical nature of debt investments.