Business, 06.08.2019 21:30 moisealafleur

Which of the following statements regarding corporate bonds is most correct? 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 collateral 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 these statements is correct.

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Answer from: whitakers87

The correct answer is option c.

Explanation:

A debenture can be defined as a debt security that is issued by a corporation. It is issued for the purpose of a long term loan. It is backed by general credit of the corporation rather than by any specified assets.

Subordinated debentures are paid at the very last in case of bankruptcy, so they are riskier. But the interest on them is higher than debentures.

Mortgaged bonds are backed by real assets, which can be sold in case of default.

So, option c is the correct answer here.

Answer from: alexmiranda00

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.

Further Explanation

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 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

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Which of the following statements regarding corporate bonds is most correct? debentures are riskier...

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