Which of the following statements is CORRECT?
a. All else equal, secured debt is more risky than unsecured debt.
b. A Company's bond rating is affected by its financial ratios but not by provisions in its indenture.
c. All else equal, senior debt has more default risk than subordinated debt.
d. Under Chapter 7 of the Bankruptcy Act, the assets of a firm that declares bankruptcy must be liquidated, and the sale proceeds must be used to pay off claims against it according to the priority of the claims as spelled out in the Act.
Use the following information for the next two problems:
The expected returns for Stocks A and B have the following probability distributions:
State of the Economy - Probability - Stock A - Stock B
Below average - 0,20 - 8% - 6%
Average - 0,60 - 13 - 15
Above average - 0,20 - 28 - 26
Calculate the expected rate of return for Stock A.
a. 11.2 percent
b. 11.4 percent
c. 11.6 percent
d. 11.8 percent