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Bonds 106: The Role of Collateral

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1.
Adding collateral to a security makes it more marketable.
Choose wisely. There is only one correct answer.
True. Many investors are attracted to the safety feature provided by 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.
A collateralized security has a lower default risk than one without collateral.
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True. Collateral ensures that some kind of payment will be made to the bondholder.
4.
If a revenue municipal bond defaults, investors do not receive their principal back from the bond.
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True. That is because payment normally comes from various revenues, which may not be there in the event of default.
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.