1. Which of the following statement is correct?
a. Secured bondholders have more risk than debenture holders for a given company.
b. All the answers are incorrect.
c. Debentures are backed only by the company’s specific assets.
d. If a debenture were to go into default, the bondholders would be unsecured creditors.
e. Subordinated debentures have a higher-priority claim on the firm’s earnings and assets.
2. Which of the following statement is incorrect?
a. Most of the answers are correct.
b. Bonds with lower than junk bonds (Ba1 or below by Moody’s and BB+ or below by Standard & Poor’s) are called investment-grade bonds.
c. A debenture is backed only by the ability and willingness of the issuing corporation to make the promised interest and principal payments as scheduled.
d. A call provision gives the issuer the option to buy back the bonds before the scheduled maturity date.
e. In August of 2011 the bond rating agency Standard and Poor’s (S&P) downgraded long-term U.S. Treasury securities from AAA to AA+.