Default risk and bankruptcy Answer: d Diff: M
54. Which of the following statements is most correct?
a. The expected return on a corporate bond is always less than its promised return when the probability of default is greater than zero.
b. All else equal, secured debt is considered to be less risky than unsecured debt.
c. Under Chapter 11 Bankruptcy, the firm’s assets are sold and debts are paid off according to the seniority of the debt claim.
d. Statements a and b are correct.
e. All of the statements above are correct.
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