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Which of the following is not true?

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Non-collateralized corporate bonds generally have higher coupon rates than those with collateral.

The higher a collateral's quality, the higher its coupon rate.

Government bonds backed by collateral have higher coupon rates than government bonds not backed by collateral.

Adding collateral to a security lowers its risk.

The higher the collateral's quality, the higher its coupon rate. Since collateral makes a bond "safer" in the eyes of investors, the issuer can lower the coupon rate.

Securities with collateral are more attractive in the secondary market than they would be without collateral.

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True

False

True. Collateralized securities are perceived by many investors as safer investments.

If the issuer of a collateralized debt security defaults, _______.

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The investor loses all of his or her money

The investor gets his or her original investment back

The investor can seize or sell the collateral

The investor can seize or sell the collateral. The collateral must be forfeited to the investor in lieu of the normal bond payments.

Which investment pledges a portfolio of securities as collateral?

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Equipment trust certificate

Repurchase agreement

Revenue municipal bond

Mortgage-backed bond

Repurchase agreement. Repurchase agreements use portfolios of securities as their collateral.

Securities without collateral have higher credit ratings than those with collateral.

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True

False

False. Securities without collateral are given lower credit ratings than those with collateral.

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