Question

Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated. b. All else equal, senior debt generally has a lower yield to maturity than subordinated debt. c. The expected return on a corporate bond will generally exceed the bond's yield to maturity. d. An indenture is a bond that is less risky than a mortgage bond. e. If a bond's coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity.

Answer 1

Answer:

b. All else equal, senior debt generally has a lower yield to maturity than subordinated debt.  

Explanation:

Bankruptcy is a legal situation that stems from a court decision, in which a magistrate, verifying that a debtor company is insolvent, that is, has negative equity, with more debts than assets, and cannot recover from this condition, must be away from its activities.

Bankruptcy should occur whenever a company is no longer viable to continue its activities due to the impairment of its financial situation. When this occurs, under our bankruptcy laws, senior debt usually has a lower yield to maturity than subordinated debt.