Interest rates are normally higher on unsecured notes than on debentures because:
A)debenture holders have a prior claim over company assets.
B)debentures are a riskier form of security.
C)unsecured notes are normally secured by a floating charge over assets.
D)unsecured notes are normally secured by a fixed charge over an asset.

Question

Quizplus · Accepted Answer

Debenture holders have a prior claim over company assets, making their investment less risky than unsecured notes. Therefore, investors require a higher rate of return for investing in unsecured notes.

Interest Rates Are Normally Higher on Unsecured Notes Than on Debentures