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:

Cash Inflows

The sum of funds entering a company, usually from operational, investment, and financial activities.

Exchange Rate

The worth of one currency when converted into another.

Inflation Rate

The rate of increase in the general price level for goods and services, undermining consumer purchasing ability.

Net Present Value

A profitability measure for an investment that is determined by deducting the present value of cash outflows from the present value of cash inflows throughout a specific time frame.