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Bonds 107: Secured and Unsecured Bonds

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1.
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.
2.
What is a debenture?
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A bond without collateral behind it. Some pay high yields, and many are sold by corporations, but all of them lack collateral.
3.
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.
4.
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.
5.
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.