Which of the following statements is CORRECT?
A)All else equal, senior debt generally has a lower yield to maturity than subordinated debt.
B)An indenture is a bond that is less risky than a mortgage bond.
C)The expected return on a corporate bond will generally exceed the bond's yield to maturity.
D)If a bond's coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity.
E)Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated.

Question

Quizplus · Accepted Answer

Senior debt is considered less risky than subordinated debt because in case of default, senior debt holders are paid before subordinated debt holders. Therefore, investors are willing to accept a lower yield for senior debt.

Which of the Following Statements Is CORRECT