SIE practice questionmediumCorporate Bonds — Subordinated Debentures
In the event of corporate bankruptcy, subordinated debentures are paid:
- ABefore secured bondholders
- BAfter preferred stockholders but before common stockholders
- CAfter senior unsecured debentures but before preferred stockholders✓ Correct answer
- DBefore senior unsecured debentures
Explanation
Why C — After senior unsecured debentures but before preferred stockholders
The liquidation priority is: secured debt > senior unsecured debt (debentures) > subordinated debentures > preferred stock > common stock. Subordinated means 'below' or 'junior to' other debt. They offer higher yields than senior debt to compensate for the additional risk of lower priority in bankruptcy.
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