Aplia:Stude let/quiz?quiz action takeQuiz&quiz; probGuid QNAPCOA801010000002a036

Question

Aplia:Stude let/quiz?quiz action takeQuiz&quiz; probGuid QNAPCOA801010000002a0360d00900008ct Aa Aa 10. Hore on types of bonds A legal document that details the rghts of bondholders and the issuer is called If the legal document just described indudes a sinking fund provision, is the bo an indenture a debenture a mortgage bond more or less default risk, all else being equal? O More default risk O Less default risk 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: Type of Band These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. These bonds are not backed by any physical collateral. TheyL are backed by the reputation and creditworthiness of the issuing company These bonds are considered the niskiest of all corporate bonds D and thus offer the highest interest rates. Based on your understanding of bond ratings and bond-rating cniteris, which of the following statements is true? an economic recession and in a pessimistic environment, the yield spread between U.S. government O During bonds and corporate bonds could be higher than during good economic times. O ouring a period of economic growth and in an optimistic environment, the vield spread between u.s. government bonds and corporate bonds couid be higher than dunng an economic recession snd in a pessimistic environment.

Explanation / Answer

1. An Indenture

2. Less Default risk

3. (a) Mortgage bond - These bonds are typically backed by real estate holdings and/or real property such as equipment. In a default situation, mortgage bondholders have a claim to the underlying property and could sell it off to compensate for the default.

(b) - Corporate Bond - The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations

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