Subordinated debt is best described as:

• A. Senior to other debt
• B. Junior in claim on assets
• C. Backed by mortgage on property
• D. Guaranteed by the government

Answer: (B)

Subordinated debt means it has a lower priority in the event of a default. In liquidation or restructuring, holders get paid only after all senior debt and other higher-priority claims are satisfied. That higher risk is why subordinated debt typically offers higher yields to investors to compensate for the increased risk. It isn’t guaranteed by the government, nor is it automatically secured by a mortgage on property, and it is not senior debt.