Which of the Following Statements Is NOT CORRECT

question 35

Multiple Choice

Which of the following statements is NOT CORRECT?

• A) All else equal, secured debt is less risky than unsecured debt.
• B) The expected return on a corporate bond must be less than its
• Promised return if the probability of default is greater than zero.
• C) All else equal, senior debt has less default risk than subordinated
• Debt.
• D) A company's bond rating is affected by its financial ratios and
• Provisions in its indenture.
• E) Under Chapter 11 of the Bankruptcy Act in the US, 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.

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Definitions:

Sales Contracts

Legal agreements that outline the terms and conditions under which goods or services are sold from a seller to a buyer.

Intellectual Property

Intangible property that is the product of one’s mind and not one’s hands.

Corporate Stocks

Equity investments representing ownership in a corporation, allowing shareholders to claim on assets and earnings.

Real Estate

Property consisting of land and the buildings on it, along with its natural resources.