Which of the following statements is CORRECT?
a. All else equal, secured debt is more risky than unsecured debt.
b. The expected return on a corporate bond must be greater than its promised return if the probability of default is greater than zero.
c

E. Under Chapter 7 of the Bankruptcy Act, the assets of a firm that declares bankruptcy must be liquidated, and the sale proceeds must be used to pay off claims against it according to the priority of the claims as spelled out in the Act. This means that secured creditors have priority over unsecured creditors, and senior debt has priority over subordinated debt. Bond ratings can be impacted by financial ratios as well as provisions in the indenture.