Question

Select the correct yield to maturity for each security provision. Higher returns tend to go with...

Select the correct yield to maturity for each security provision. Higher returns tend to go with greater risk.

A. Debenture

1. 10.67

2. 8.59

3. 9.79

B. Secured Debt

1. 10.67

2. 8.59

3. 9.79

C. Subordinated debenture

1. 10.67

2. 8.59

3. 9.79

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Answer #1

A. Debentures are unsecured and they will be having most risk and hence they will be having the most risk so debenture will be having 10.67% rate of return.

B. Secured debt is the most senior debt and they will be discharged of earliest and they are highly secured so they will be provided with the lowest yield because they have lower risk.

Rate of return of secured debt will be 8.59%

C. Subordinated debentures are the debenture which will be discharged after secured debt and they will be having a moderate risk and the moderate return.

Return of subordinated debentures will be 9.79%.

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