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Bonds 107: Secured and Unsecured Bonds

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1.
Although unsecured bonds have no backing, they are protected from default by a promise to pay.
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True. This promise is called "full faith and credit," and many corporations and government units with good credit use it.
2.
The collateral behind a railroad car purchase may be the railroad car itself.
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True. Railroads commonly sell equipment trust certificates to buy new equipment. Sometimes, the collateral is the item that was bought.
3.
Which unsecured bond can be exchanged for stock?
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Convertible bond. This bond has no collateral backing it.
4.
What secures revenue bonds?
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Revenue generated by projects funded by the bonds. This revenue is used to pay interest and principal to investors.
5.
What is a debenture?
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A bond without collateral behind it. Some pay high yields, and many are sold by corporations, but all of them lack collateral.