Which of the following statements is NOT CORRECT?
A) The expected return on a corporate bond must be less than its promised return if the probability of default is greater than zero.
B) All else equal, senior debt has less default risk than subordinated debt.
C) A company's bond rating is affected by its financial ratios and provisions in its indenture.
D) Under Chapter 11 of the Bankruptcy Act, the assets of a firm that declares bankruptcy must be liquidated, and the sale proceeds must be used to pay off its debt according to the seniority of the debt as spelled out in the Act.
E) All else equal, secured debt is less risky than unsecured debt.

Question

Quizplus · Accepted Answer

Under Chapter 11, a company that declares bankruptcy may reorganize its operations and continue its business. The assets are not necessarily liquidated and paid off according to the seniority of the debt as stated in the Act. The other statements are correct.

Which of the Following Statements Is NOT CORRECT