Corporations issuing debentures should expect to pay higher interest rates than corporations issuing secured bonds.

Question

Quizplus · Accepted Answer

Debentures are unsecured bonds, meaning they do not have any assets pledged as collateral to secure the bond. Therefore, investors see them as riskier investments and demand higher interest rates to compensate for the added risk. Secured bonds, on the other hand, have assets pledged as collateral, reducing their perceived risk and enabling corporations to pay lower interest rates.

Corporations Issuing Debentures Should Expect to Pay Higher Interest Rates