Question

You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table that follows:These bonds are collateralized securities with first claims in the event of bankruptcy.
These bonds are not backed by any physical collateral. They are backed by the reputation and creditworthiness of the issuing company.
These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates.

Answer 1

Answer:

a. Senior mortgage bonds b. Debentures c. Subordinated debentures

Explanation:

A mortgage bond is a financial instrument which is backed by some real assets. These assets can be sold to cover the cost in case of default. Senior mortgage bonds are the first to be paid in case of bankruptcy.

Debentures are financial tool used for long term borrowing by corporations. They are not backed by any specific assets but by credit worthiness of the firm itself.

Subordinated debentures are the last to be paid off in case of bankruptcy and thus carries highest risk. However they also provide highest interest.