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Bonds 106: The Role of Collateral

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1.
Adding collateral to a security makes it more marketable.
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True. Many investors are attracted to the safety feature provided by collateral.
2.
Loan and debt issuers use collateral to attract investors.
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True. Collateral helps protect against losses from default.
3.
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.
4.
Securities without collateral have higher credit ratings than those with collateral.
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False. Securities without collateral are given lower credit ratings than those with collateral.
5.
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.