Select the best answer and please also provide your explanation.

ZYX Ltd. currently consists of equity and riskless senior debt that has the same yield as the risk-free rate. The company is considering issuing more debt that will turn its riskless debt into risky debt. There will be no other changes in the company. A student made the following three statements:

1. There will be a transfer of wealth from the old debtholders to the new debtholders if the seniority of the new debt is the same as the old debt
2. There will be a transfer of wealth from the new debtholders to the shareholders if the new debt has lower seniority than the old debt
3. If the firm issues junior debt, the old debtholders will not be harmed

Which of these statements are correct?

Group of answer choices

(a) Only the first statement

(b) Only the second statement

(c) Only the third statement

(d) Both the first and third statements are correct, but the second is incorrect

(e) All three statements are correct