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A collateralized security has a lower default risk than one without collateral.

True

False

True. Collateral ensures that some kind of payment will be made to the bondholder.

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

True

False

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

Which investment pledges a portfolio of securities as collateral?

Equipment trust certificate

Repurchase agreement

Revenue municipal bond

Mortgage-backed bond

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

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.