Commercial Paper

Rule 11 of 32 in this unit2.1.2

2.1.2 Debt Instruments

SIE outline 2.1.2

A short-term, fixed-maturity note. Unsecured, and issued in the open market. By the borrower itself, on its own name. NOT secured by anything.

The method for this kind of question

The debt run ends here

Now answer

1 question on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

A corporation is wound up. After secured bondholders and general creditors (debenture holders) are paid, who is asked next, before either class of stockholder?

A. Subordinated debenture holders B. Common stockholders C. Preferred stockholders D. No one; remaining assets go directly to common stockholders once debenture holders are paid

How sure are you?

Sure Fairly sure Guessing

Correct: A. The claim queue runs secured, debenture, subordinated debenture, preferred, common; subordinated debenture holders stand behind debenture holders but ahead of both classes of stockholder.

B. Common stockholders are last in the queue, after both classes of debt and preferred stock.

C. Preferred stockholders come after subordinated debenture holders, not before them.

D. Subordinated debenture holders sit between general creditors and preferred stockholders; they are not skipped.

Unit: SIE outline 2.1.2

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