Explanation:

Since senior debt always takes precedence, it will be paid off in full.
Thus, $2.25m - $2m = $0.25m
Therefore, subordinated debt holders will receive just half of their total claim.

Things to Remember

Senior debt holders have the first claim on a company's assets in case of liquidation
Subordinated debt holders are paid only after senior debt holders have been paid in full
In case of liquidation, the value of a firm's assets may not be sufficient to cover all debts, leading to losses for debt holders
Subordinated debt is considered riskier than senior debt due to its lower priority in the repayment hierarchy

Q.1802 A firm has 2 categories of debt: A and B. Debt A totals `$2`m and debt B amounts to `$0.5`m. A is senior debt while B is subordinated debt. In case the company is liquidated, how much will holders of debt B get, given that the firm has assets worth `$2.25`m at liquidation?

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Last updated: July 5, 2026 at 07:14

$0.75m

$0m

$2.5m

$0.25m

Financial Risk Manager Part 2

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Q.1802 A firm has 2 categories of debt: A and B. Debt A totals `$2`m and debt B amounts to `$0.5`m. A is senior debt while B is subordinated debt. In case the company is liquidated, how much will holders of debt B get, given that the firm has assets worth `$2.25`m at liquidation?

Financial Risk Manager Part 2

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Comments (0)

Q.1802 A firm has 2 categories of debt: A and B. Debt A totals $2m and debt B amounts to $0.5m. A is senior debt while B is subordinated debt. In case the company is liquidated, how much will holders of debt B get, given that the firm has assets worth $2.25m at liquidation?

Q.1802 A firm has 2 categories of debt: A and B. Debt A totals `$2`m and debt B amounts to `$0.5`m. A is senior debt while B is subordinated debt. In case the company is liquidated, how much will holders of debt B get, given that the firm has assets worth `$2.25`m at liquidation?