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Bonds 107: Secured and Unsecured Bonds

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1.
Which unsecured bond can be exchanged for stock?
Choose wisely. There is only one correct answer.
Convertible bond. This bond has no collateral backing it.
2.
Mortgage bonds are backed by _______.
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Real estate. That is why they are called mortgage bonds.
3.
The collateral behind a railroad car purchase may be the railroad car itself.
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True. Railroads commonly sell equipment trust certificates to buy new equipment. Sometimes, the collateral is the item that was bought.
4.
Unsecured bonds are issued with the issuer's promise to offer stock options in the future.
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False. The sellers do not offer stock options to investors at a later date when issuing unsecured bonds.
5.
Although unsecured bonds have no backing, they are protected from default by a promise to pay.
Choose wisely. There is only one correct answer.
True. This promise is called "full faith and credit," and many corporations and government units with good credit use it.