Which of the following statements regarding corporate bonds is Debentures are ri

Question

Which of the following statements regarding corporate bonds is Debentures are riskier than subordinated debentures because they are paid last in the event of bankruptcy. Mortgage bonds are riskier than debentures because the value of the asset pledged as colateral may not be sufficient to repay the mortgage. The interest rate on subordinated debentures is likely to be higher than the interest rate on debentures. Debentures are secured by the asset purchased with the loaned funds. None of the above statements is correct

Explanation / Answer

THE INTEREST RATE ON SUBORDINATED DEBENTURES IS LIKELY TO BE HIGHER THAN THE INTEREST RATE ON DEBENTURE, BECAUSE IT HAS A INCEREASED LEVEL OF INHERENT RISK ON PAYMENT AT DISPOSAL. IT RANKS AFTER ALL THE DEBT HAVE BEEN PAID.

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