Interest Rates Are Normally Higher on Unsecured Notes Than on Debentures

question 20

Multiple Choice

Interest rates are normally higher on unsecured notes than on debentures because:

• A)debenture holders have a prior claim over company assets.
• B)debentures are a riskier form of security.
• C)unsecured notes are normally secured by a floating charge over assets.
• D)unsecured notes are normally secured by a fixed charge over an asset.

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Definitions:

Industrial Gas

Gases produced for use in industrial processes, such as oxygen for steel-making or nitrogen and argon for welding.

Merchandise Inventory

Items held for sale in the ordinary course of business, often quantified for accounting and operational purposes.

Monthly Depreciation

The portion of a tangible asset's cost that is allocated as an expense over a month, reflecting the asset's usage and wear and tear.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, typically used for managing liquidity.