Question

Which of the following bond type is a bond whose rights to interest payments are ranked after those of other secured groups of creditors?

1) Callable bonds
2) Convertible bonds
3) Coupon bonds
4) Debenture bonds

Answer 1

A debenture bond is a type of bond whose rights to interest payments are secondary to those of other creditors. This unsecured debt relies on the issuer's creditworthiness rather than collateral. Debentures are paid after secured debts in the event of issuer liquidation.

Step-by-step explanation:

The type of bond whose rights to interest payments are ranked after those of other secured groups of creditors is known as a debenture bond. Unlike secured bonds, debenture bonds are not backed by any collateral, i.e., physical assets like real estate or equipment. Instead, they are based on the creditworthiness and reputation of the issuer. Therefore, in the event of liquidation, debenture bondholders get paid after those holding secured bonds.

When you look at various bond types, such as callable bonds, convertible bonds, and coupon bonds, these all have different features. Callable bonds can be redeemed by the issuer before their maturity date. Convertible bonds can be converted into a predetermined number of shares of the issuing company. Coupon bonds refer to bonds that pay out a fixed interest rate over time, which is typically paid semi-annually.