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Bonds 106: The Role of Collateral

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1.
The less risk an investment has, the more an investor expects to earn from it.
Choose wisely. There is only one correct answer.
False. The more risk an investment has, the more an investor expects to be able to earn from it.
2.
Which of the following is not true?
Choose wisely. There is only one correct answer.
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.
3.
In an equipment trust certificate, a trustee holds the title to the collateral.
Choose wisely. There is only one correct answer.
True. A third-party trustee holds the title.
4.
If the issuer of a collateralized debt security defaults, _______.
Choose wisely. There is only one correct answer.
The investor can seize or sell the collateral. The collateral must be forfeited to the investor in lieu of the normal bond payments.
5.
Securities with collateral are more attractive in the secondary market than they would be without collateral.
Choose wisely. There is only one correct answer.
True. Collateralized securities are perceived by many investors as safer investments.