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A junior security is a security that ranks below other securities in terms of its claim on a company's assets or income. In other words, "junior security" is a term used to rank securities' claim to repayment. If a company goes out of business, the assets and income are distributed according to securities' rankings, with a junior security coming after more senior securities. For example, a common stock is a junior security when compared to a preferred stock, and a preferred stock is a junior security when compared to a bond. Thus in the event of bankruptcy, bondholders are paid back before preferred shareholders. After preferred shareholders are paid back, holders of a junior security can claim any remaining assets.
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