Claim dilution arises when:
A) the entity is unable to repay a loan.
B) a lender restricts an entity from obtaining debt of a lower priority.
C) the entity takes out a secured loan after obtaining an unsecured loan from another lender.
D) a lender restricts an entity from obtaining debt with an earlier maturity date.

Question

Quizplus · Accepted Answer

Claim dilution occurs when an entity takes out a secured loan after obtaining an unsecured loan from another lender. This is because the secured lender will have a higher priority over the unsecured lender in the event of default, resulting in the unsecured lender's claim being diluted.

Claim Dilution Arises When