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

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.

The less risk an investment has, the more an investor expects to earn from it.

True

False

False. The more risk an investment has, the more an investor expects to be able to earn from it.

Adding collateral to a security makes it more marketable.

True

False

True. Many investors are attracted to the safety feature provided by collateral.

Which of the following is not true?

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.

If a revenue municipal bond defaults, investors do not receive their principal back from the bond.

True

False

True. That is because payment normally comes from various revenues, which may not be there in the event of default.