Match the yield to maturity in column 2 with the security provisions (or lack thereof) in column 1. Higher returns tend to go with greater risk.

(1) (2)

Security Provision Yield to Maturity

a.Debenture a.6.85%

b.Secured debtb.8.20%

c.Subordinated debenture c.7.76%

Secured debts are those that are backed up by some class of assets. Thus they are less risky in terms of default. Because of lower risk, interest is also earned less on these debts.

On the contrary, unsecured debt does not have any security and charges higher interest for taking more risk.

a. Debenture – it is the security that does not need any security for providing loans. Thus the risk is higher in this case. So, the interest earned on the debenture would be 8.20%.

b. Secured debt – Since it is the secured debt, it has been backed up by certain assets. So, the risk is lowest under this type of loan, In this case, the yield to maturity would be 6.85%.

c. Subordinate debenture – A subordinate debenture is also an unsecured loan with the difference that they are not highly ranked and subordinated debts. The yield to maturity for this loan would be 7.76%.