Which of the Following Statements Is CORRECT

question 12

Multiple Choice

Which of the following statements is CORRECT?

• A) All else equal,secured debt is more risky than unsecured debt.
• B) The expected return on a corporate bond must be greater than its promised return if the probability of default is greater than zero.
• C) All else equal,senior debt has more default risk than subordinated debt.
• D) A company's bond rating is affected by its financial ratios but not by provisions in its indenture.
• E) Under Chapter 7 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 claims against it according to the priority of the claims as spelled out in the Act.

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Definitions:

Protective Tariffs

Taxes imposed on imported goods to protect domestic industries from foreign competition by making the imported goods more expensive compared to local products.

Trade Deficit

A situation where a country’s imports exceed its exports during a given time period, leading to a negative balance of trade.

Capital

All means of production (mainly plant and equipment) created by people.

Better Paid

Describes a position or job that offers a higher salary compared to others, often reflecting skill level, experience, or demand.