Question

Which of the following statements regarding corporate bonds is most correct? a. Debentures are riskier than subordinated debentures because they are paid last in the event of bankruptcy.

Answer 1

Answer:

The answer is C. The interest rate on subordinated debentures is likely to be higher than the interest rate on debentures

Explanation:

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Debentures are long-term security (bond) that is not secured by any collateral. It is being issued based on the past record of the issuer i.e the issuer's creditworthiness and also its reputation.

What is subordinated debenture? - This is also an unsecured loan but ranks below the table i.e some loans are above it in the ranking.

The interest or yield on subordinated debts is usually higher because it is more risky than the normal debentures.