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.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Debt Securities questions