Question

Which of the following represents the priority of claims (highest to lowest) against a firm's assets?

Select one: A. Senior debentures, junior secured bonds, preferred stock, common stock

B. Preferred stock, junior secured bonds, senior debentures, common stock

C. Common stock, junior secured bonds, senior debentures, preferred stock

D. Senior debentures, junior secured debentures, preferred stock, common stock

Answer 1

The debentures are next in line for the priority of claims over the assets after the bonds.

So, the best option is option D,

where the senior debentures are first, next is junior secured debentures, the preference stock has a higher claim over assets than the common stock and the last is common stock which has the least claims over assets at the time of liquidation.

The first option is incorrect as the dentures is shown to have a higher priority over junior secured bonds.

B and C are incorrect as they show priority of preference and common stock over bonds and debentures.