in the event of default, the recovery rate of which of the following bonds would most likely be the highest?
A) First mortgage debt
B) Senior unsecured debt
C) Junior subordinate debt

Question

Quizplus · Accepted Answer

First mortgage debt has the highest recovery rate in the event of default because it is secured by the borrower's property. In the event of default, the lender will have a claim on the property and can sell it to recover the outstanding debt. Senior unsecured debt may have some recovery but it is not secured by any collateral while junior subordinate debt is the last in line for payment and has the least likelihood of recovery.

In the Event of Default, the Recovery Rate of Which