Which of the following statements is CORRECT?
A) subordinated debt has less default risk than senior debt.
B) convertible bonds have lower coupon rates than non-convertible bonds of similar default risk because they offer the possibility of capital gains.
C) junk bonds typically provide a lower yield to maturity than investment-grade bonds.
D) a debenture is a secured bond that is backed by some or all of the firm's fixed assets.
E) junior debt is debt that has been more recently issued, and in bankruptcy it is paid off after senior debt because the senior debt was issued first.

Question

Quizplus · Accepted Answer

Convertible bonds offer the possibility of capital gains through their ability to be converted into common stock, which lowers the coupon rate compared to similar non-convertible bonds.

Note: None of the other statements are correct. Subordinated debt has higher default risk than senior debt. Junk bonds typically provide a higher yield to maturity than investment-grade bonds. A debenture is an unsecured bond that does not have any collateral backing it. Junior debt is debt that has a lower priority in bankruptcy compared to senior debt.

Which of the Following Statements Is CORRECT