Which of the Following Statements Is False

question 25

Multiple Choice

Which of the following statements is false?

• A) In the event of default, the assets not pledged as collateral for outstanding bonds cannot be used to pay off the holders of subordinated debentures until all more senior debt has been paid off.
• B) Because more than one debenture might be outstanding, the bondholder's priority in claiming assets in the event of default, known as the bond's seniority, is important.
• C) When a firm conducts a subsequent debenture issue that has lower priority than its outstanding debt, the new debt is known as a subordinated debenture.
• D) Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt.

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Definitions:

Utility Function

A utility function is a mathematical representation of a consumer’s preferences, ranking different bundles of goods according to levels of satisfaction.

Indifference Curve

A graph showing different bundles of goods between which a consumer is indifferent, meaning they would derive the same level of satisfaction from any combination.

Bliss Point

The optimal quantity of consumption where any further increase or decrease would lead to a lower level of satisfaction for the consumer.

Indifference Curves

Graphical representations in microeconomics to illustrate different combinations of goods between which a consumer is indifferent.