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Answer: The bond issued to Sally Miller was a violation of the after-acquired clause in John Smith’s indenture
**Correct answer: D** - A **mortgage bond** is secured by a lien on real property, so **A** is plausible. - A **subordinated debenture** has lower priority than a mortgage bond and would typically require a **higher coupon rate**, so **B** is plausible. - An **after-acquired clause** relates to property acquired after the bond is issued; it does not describe the issuance of a later subordinated debenture. Thus **D** is the least plausible statement. > Note: The wording in **C** is also not the best description of the clause given in the stem, but **D** is the least plausible because a later subordinated debenture does not violate an after-acquired clause tied to collateral property.
Author: Manit Arora
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Question 506.1. In 2014, General Products Incorporated issues a mortgage bond to investor John Smith. The bond’s indenture authorized the issuance of an additional bonds, in the future, with the same mortgage lien as already issued to John Smith. In 2015, General Products issued a subordinated debenture to Investor Sally Miller. In regard to John Smith’s mortgage bond, which of the following is the LEAST plausible?
A
John Smith was granted a security interest in real property
B
The bond issued to Sally Miller carries a higher coupon rate than Investor ABC’s mortgage bond
C
John Smith’s indenture imposed conditions in an after-acquired clause
D
The bond issued to Sally Miller was a violation of the after-acquired clause in John Smith’s indenture
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