Senior debt should have a lower times-interest-earned than junior debt.

Question

Quizplus · Accepted Answer

This statement is false as senior debt should have a higher times-interest-earned than junior debt. Times-interest-earned is a measure of a company's ability to meet its interest payments with its earnings. Since senior debt holders are given priority during bankruptcy, they are considered less risky than junior debt holders. Therefore, senior debt holders require a lower interest rate and have a higher times-interest-earned ratio than junior debt holders.

Senior Debt Should Have a Lower Times-Interest-Earned Than Junior Debt