Which of the following debt instruments would have the highest cost of debt to the borrower?
A) Debenture
B) Commercial paper
C) Senior, secured debt

Question

Quizplus · Accepted Answer

Debentures typically have a higher cost of debt for the borrower compared to other forms of debt like commercial paper and senior, secured debt because they are unsecured. This means they are not backed by collateral, leading to a higher risk for lenders, who in turn demand a higher interest rate to compensate for the increased risk. Commercial paper is a short-term instrument and usually carries lower interest rates due to its short maturity. Senior, secured debt is backed by collateral, reducing the risk for lenders and thus usually comes with a lower interest rate compared to unsecured debt instruments like debentures.

Which of the Following Debt Instruments Would Have the Highest