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Bonds 107: Secured and Unsecured Bonds

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1.
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.
2.
Which bond's interest and principal can be repaid by the US government?
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Treasury bond. The US Treasury sells its own bonds.
3.
Which unsecured bond can be exchanged for stock?
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Convertible bond. This bond has no collateral backing it.
4.
Although unsecured bonds have no backing, they are protected from default by a promise to pay.
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True. This promise is called "full faith and credit," and many corporations and government units with good credit use it.
5.
What secures revenue bonds?
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Revenue generated by projects funded by the bonds. This revenue is used to pay interest and principal to investors.