Which of the Following Statements Best Describes Type of Debt

question 56

Multiple Choice

Which of the following statements best describes type of debt?

• A) 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.
• B) Subordinated debt has less default risk than senior debt.
• C) Convertible bonds have lower coupon rates than non-convertible bonds of similar default risk because they offer the possibility of capital gains.
• D) Junk bonds typically provide a lower yield to maturity than investment-grade bonds.

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Definitions:

Present Value

The present-day valuation of a future lump sum or cash flow sequence, taking into account a defined rate of return.

Discounting Periods

The intervals at which cash flows are discounted back to their present value in financial analysis.

Annual Annuity

A financial product providing a series of payments made at equal intervals over a set period, typically one year.

Bank Account

An account managed by a bank where the monetary transactions between the bank and its customers are documented.