Collateralized bonds are backed by specific assets of the issuing firm, which makes them safer than unsecured bonds. However, their safety still depends on the quality of the assets and their ability to generate cash flows to repay the bondholders. Therefore, they are not as safe as government bonds or other highly rated bonds.

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Collateralized Bonds

Question 85

Multiple Choice

Collateralized bonds

A) rely on the general earning power of the firm for the bond's safety.
B) are backed by specific assets of the issuing firm.
C) are considered the safest variety of bonds.
D) all of the above are true.
E) both B and C are true.

Correct Answer: