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1.
In an equipment trust certificate, a trustee holds the title to the collateral.
True. A third-party trustee holds the title.
2.
A collateralized security has a lower default risk than one without collateral.
True. Collateral ensures that some kind of payment will be made to the bondholder.
3.
Which of the following is not true?
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.
4.
The less risk an investment has, the more an investor expects to earn from it.
False. The more risk an investment has, the more an investor expects to be able to earn from it.
5.
Adding collateral to a security makes it more marketable.
True. Many investors are attracted to the safety feature provided by collateral.
