The statement that is most correct regarding corporate bond is: The interest rate on subordinated debentures is likely to be higher than the interest rate on debentures
A debenture is a debt security that can be issued by both corporate and government organizations. Debentures are similar to bonds and it is a long-term loan that can be issued to firms.
<h2>Further Explanation</h2>
It is a typical form of loans that are expected to be payback on a certain date. A debenture is backed by general credits of the issued corporation and it has a lower interest rate.
However, some debentures are irredeemable also referred to as perpetual debenture; this implies the company the debentures are not to be repaid by the company throughout its existence but are only repayable if the company is completely out of business (liquidation).
Subordinated debentures, also called subordinated debt are only repayable in the case of liquidation. Subordinated debts are very risky but they have higher interest compared to debentures.
However, a mortgage bond is a bond that is backed by real estate holdings. Mortgage bondholders may decide to sell his bond in case of default to secure the payment of dividends.
Therefore, the statement that is most correct regarding corporate bonds is: The interest rate on subordinated debentures is likely to be higher compared to debentures.
LEARN MORE:
- As a general rule, a company's debentures have higher required interest rates than its mortgage bonds because mortgage bonds are backed by specific assets while debentures are unsecured brainly.com/question/14788206
- When real property is used as collateral for a bond, it is termed When real property is used as collateral for a bond, it is termed
KEYWORDS:
- mortage bonds
- corporate bond
- debentures
- bankruptcy
- collateral
