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:

Average Total Cost

The total cost of production divided by the total quantity produced, representing the average cost per unit of output.

Implicit Costs

The opportunity costs of using resources owned by the business for its operations, not directly paid out in cash.

Delivery Truck

A vehicle specifically designed for transporting goods from one location to another.

Income

The amount of money received over a period of time either as payment for work, goods, or services, or through investments.