Which of the following statements is correct?

Question

Quizplus · Accepted Answer

A company's bond rating is affected by its financial ratios and provisions in its indenture. This is because the rating agencies evaluate a company's ability to repay its debt obligations based on its financial ratios and the protective measures in its indenture (such as security, covenants, and restrictions). The other statements are incorrect. Secured debt is generally considered less risky than unsecured debt because it has collateral backing it up. The expected return on a bond does not have to be more than its promised return unless there is a significant probability of default, in which case the bond's expected return would reflect the higher risk. Senior debt is generally less risky than subordinated debt because it has priority in payment in the event of default.

Which of the Following Statements Is Correct