If a corporation were to choose between issuing a debenture,a mortgage bond,or a subordinated debenture,which would have the highest yield to maturity,everything else equal?
A) the debenture
B) the mortgage bond
C) the subordinated debenture
D) all of the above

Question

Quizplus · Accepted Answer

A subordinated debenture is riskier than both a debenture and a mortgage bond because it is lower in priority for repayment in the event of bankruptcy. Therefore, investors demand a higher yield to compensate for the increased risk. Consequently, a subordinated debenture will have the highest yield to maturity compared to a debenture or a mortgage bond, assuming all other factors (such as maturity, coupon rate, and credit rating) are equal.

If a Corporation Were to Choose Between Issuing a Debenture,a