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Bonds 106: The Role of Collateral

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1.
Securities without collateral have higher credit ratings than those with collateral.
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False. Securities without collateral are given lower credit ratings than those with collateral.
2.
The less risk an investment has, the more an investor expects to earn from it.
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False. The more risk an investment has, the more an investor expects to be able to earn from it.
3.
In an equipment trust certificate, a trustee holds the title to the collateral.
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True. A third-party trustee holds the title.
4.
If the issuer of a collateralized debt security defaults, _______.
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The investor can seize or sell the collateral. The collateral must be forfeited to the investor in lieu of the normal bond payments.
5.
Which investment pledges a portfolio of securities as collateral?
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Repurchase agreement. Repurchase agreements use portfolios of securities as their collateral.