Which of the following forms of debt would be likely to offer debtholders the lowest interest rate?
A) Secured debt that is not callable.
B) Secured debt with a sinking fund.
C) Subordinated debt that is callable.
D) Subordinated debt with a sinking fund.

Question

Quizplus · Accepted Answer

Secured debt with a sinking fund is likely to offer debtholders the lowest interest rate because it has additional protections for the issuer and therefore lower risk for the debtholders. A sinking fund ensures that the issuer sets aside a certain amount of money each year to pay off the debt, which reduces the risk of default. The security also provides additional protection to the debtholders, which further lowers the risk and results in a lower interest rate.

Which of the Following Forms of Debt Would Be Likely