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Basic Question 2 of 16
Market participants will generally have the highest required return for the following bonds:
B. Collateral trust bonds
C. Subordinated debentures
D. Debentures
A. Mortgage bonds
B. Collateral trust bonds
C. Subordinated debentures
D. Debentures
User Contributed Comments 8
| User | Comment |
|---|---|
| danlan | What are subordinated? |
| wroger | subordinate debentures = junior debentures. |
| Done | more risk = more return. They are unsecured as well |
| cong | subordinate means lower seniority. |
| endurance | thanks cong |
| davcer | senior AAA, subordinated AA, A, BBBB |
| adidasler | just think of junk bonds |
| ascruggs92 | Lol first off, Danlan, read the notes. Second, davcer & adidasler, bond ratings are influenced by seniority but do not depend on seniority, meaning a subordinate bond is less likely to have an AAA rating but it is not unheard of. Since "junk bonds" just refers to debt with very low ratings, the same concept applies. Think about it, if you bought the least senior AAPL bonds that are offered, even if they had ten traunches (levels of seniority), the bonds would still be considered investment grade bonds and would have an AAA rating. Junk bonds can be un-subordinated and still be junk because the company has a bad credit rating. |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe the seniority rankings of debt, secured versus unsecured debt and the priority of claims in bankruptcy, and their impact on credit ratings
CFA® 2025 Level I Curriculum, Volume 4, Module 16.