Other things equal, a firm will have to pay a higher coupon rate on a subordinated debenture than on a second mortgage bond.

Name: Other things equal, a firm will have to pay a higher coupon rate on a subordinated debenture than on a second mortgage bond.
Brand: Quizplus
Rating: 4.9 (62 reviews)

Question

Quizplus · Accepted Answer

A subordinated debenture is lower in priority compared to a second mortgage bond in the event of default. This increased risk results in a higher coupon rate to compensate investors for taking on that risk.

Other Things Equal, a Firm Will Have to Pay a Higher