Question

Which of the following statements is FALSE of bonds without the following features? Secured debt has lower coupons A bond with a sinking fund has lower coupons. A callable bond has a higher coupon Subordinate debt has higher coupons. Senior, secured debt has higher coupons.

Answer 1

# Secured debts is backed by Collatereal,it is less riskier for lending and becuase of this secured debt has lower coupon rates

# Bond with sinking fund allows the company to spread the risk of paying entire borrowed par bond value on one particular year,instead by creating sinking fund and repaying the borrowed amount based on terms.So this creates the reduce risk of default as a result a bond with sinking fund has lower coupon rates

# Callable bond can be redeemed before maturity and because of this nature it needs higher coupon rates to attract the Investors.

# Subordinate debt is also known as Junior securities and the holder of this debt will be paid last in the case of Bankruptcy on compared with senior debt holders.Subordinate debt was high riskier and it normally has high coupon rates.

# Senior,Secured debt has higher Coupons - False Statement

Reason : # Senior,secured debt has highly secured and have high priority in settling bankruptcy of company and it is less risker in default.So it will normally has lower coupon rates