Which of the Following Statements Is NOT CORRECT

question 11

Multiple Choice

Which of the following statements is NOT CORRECT?

• A) The expected return on a corporate bond must be less than its promised return if the probability of default is greater than zero.
• B) All else equal, senior debt has less default risk than subordinated debt.
• C) A company's bond rating is affected by its financial ratios and provisions in its indenture.
• D) Under Chapter 11 of the Bankruptcy Act, the assets of a firm that declares bankruptcy must be liquidated, and the sale proceeds must be used to pay off its debt according to the seniority of the debt as spelled out in the Act.
• E) All else equal, secured debt is less risky than unsecured debt.

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Definitions:

Remainder

The amount left over or remaining after division or allocation.

Alternative

An option or choice that is available as a substitute or replacement for something else.

Market Supply Curve

A graphical representation showing the total quantity of a good that producers are willing to sell at various prices within a given time period.

Competitive Market

A market structure characterized by a large number of buyers and sellers, free entry and exit from the market, and products that are similar enough to be considered close substitutes, leading to price competition and efficiency.