Answer (A) is correct . A mortgage bond is secured with specific fixed assets, usually real property. Thus, under the rights enumerated in the bond indenture, creditors will be able to receive payments from liquidation of the property in case of default. In a bankruptcy proceeding, these amounts are paid before any transfers are made to other creditors, including those preferences. Hence, mortgage bonds are less risky than the others listed.
Answer (B) is incorrect because A debenture is long-term debt that is not secured (collateralized) by specific property. Subordinated debentures have a claim on the debtor’s assets that may be satisfied only after senior debt has been paid in full. Debentures of either kind are therefore more risky than mortgage bonds.
Answer (C) is incorrect because An income bond pays interest only if the debtor earns it. Such bonds are also more risky than secured debt.
Answer (D) is incorrect because Unsecured debt is riskier than a mortgage bond.
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