SIE Exam Question 945: Answer and Explanation

Question: 945

All but which of the following are correct regarding subordinated debentures?

• A. In the event of liquidation, they are prioritized lower than other classes of debt.
• B. This class of debt carries less risk, and therefore pays lower interest, than other classes.
• C. They are unsecured loans which have no collateral.
• D. They are a type of junior debt.

Correct Answer: B

Explanation:

In the event of liquidation, subordinated debentures are prioritized lower than other classes of debt. They are unsecured loans which have no collateral, and they are a type of junior debt. Subordinated debentures carry higher risk, but also pays higher interest, than other classes.