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Bonds 106: The Role of Collateral

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1.
Government collateralized securities are secured by the taxing power of the government.
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False. Government collateralized securities are not secured by the taxing power of the government, but by the collateral itself.
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.
Securities with collateral are more attractive in the secondary market than they would be without collateral.
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True. Collateralized securities are perceived by many investors as safer investments.
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.
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.