Practice Quiz

FINRA Series 6

Category - Series 6

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Rank the following entities with regard to the priority of their claims on a firm-from the highest priority to the lowest priority-in the event of bankruptcy.

I. common shareholders
II. preferred shareholders
III. secured bondholders
IV. debenture holders
  1. III, II, IV, I
  2. II, III, I, IV
  3. III, IV, II, I
  4. IV, III, II, I
Explanation
Answer: C - Choice C correctly ranks the entities with regard to the priority of their claims on the firm in the event of bankruptcy, from the highest priority to the lowest priority. Secured bondholders get paid first, then debenture (unsecured bond) holders, followed by preferred shareholders. Common shareholders come in last.
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