Final answer:
Junior unsecured debt usually offers higher yields compared to senior secured debt because it comes with higher risk, lacking collateral and priority in bankruptcy situations, justifying higher returns to compensate investors.
Step-by-step explanation:
Considering a firm with both junior unsecured debt and senior secured debt, the junior unsecured debt should typically have higher yields. This is primarily because junior unsecured debt is riskier as it is not backed by collateral and will be lower in priority during bankruptcy proceedings compared to the senior secured debt, which is backed by certain assets of the company. Investors require a higher yield to compensate for the additional risk they are taking on when investing in bonds that have a relatively higher chance of default. In general, bond yields are a reflection of the risk involved in the investment; higher risks command higher yields to attract investors.