Question: Sludge Corporation has two bonds outstanding, each with a face value of $2 million. Bond A is a senior bond; bond B is subordinated. Sludge

Sludge Corporation has two bonds outstanding, each with a face value of $2 million. Bond A is a senior bond; bond B is subordinated. Sludge has suffered a severe downturn in demand, and its assets are now worth only $3 million. If the company defaults, what payoff can the holders of bond B expect?

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