Subordinated debt-holders will demand higher compensation than unsubordinated debt-holders because:
A)unsubordinated debt is riskier.
B)subordinated debt ranks ahead of unsubordinated debt.
C)unsubordinated debt ranks ahead of subordinated debt.
D)the interest rate on subordinated debt tends to be fixed rather than variable.

Question

Quizplus · Accepted Answer

Subordinated debt is lower in priority for repayment than unsubordinated debt in the event of a borrower's default, making it riskier. Therefore, holders of subordinated debt demand higher compensation for the increased risk.

Subordinated Debt-Holders Will Demand Higher Compensation Than Unsubordinated Debt-Holders Because