Final answer:
The order of interest rates from low to high for the listed bonds, considering their risk and features, is: Senior debt, Senior debt that is also convertible, and Subordinated debt.
Step-by-step explanation:
In evaluating the order of interest rates for different types of bonds, we need to consider the risk and features associated with each type. Senior debt is generally the least risky type of debt because it is paid first in the event of a company’s liquidation. Therefore, it typically offers the lowest interest rate. Subordinated debt is paid after senior debt in the event of liquidation, which makes it riskier and typically it carries a higher interest rate. Senior debt that is also convertible into equity usually offers a lower interest rate compared to other types of bonds because the convertible feature is valuable to investors; the potential to convert to equity if the company’s stock price increases provides an additional benefit.
Considering these factors, the correct order from low to high interest rates would be:
- Senior debt because of its priority in repayment and lower risk.
- Senior debt that is also convertible, since the option to convert adds value and can afford slightly lower interest rates.
- Subordinated debt, since it carries more risk, it must offer a higher interest rate to attract investors.
The correct sequence is therefore: 3) Senior debt; Subordinated debt; Senior debt that is also convertible.