Multiple Choice
Which of the following best describes the difference between a convertible bond and a warrant?
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7. Receivables and Investments
Introduction to Investments in Securities
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Which of the following is another term used to describe unsecured bonds?
A
Callable bonds
B
Debentures
C
Mortgage bonds
D
Convertible bonds
Verified step by step guidance1
Understand the concept of unsecured bonds: Unsecured bonds are bonds that are not backed by any specific collateral. Instead, they rely on the issuer's creditworthiness and reputation.
Review the term 'debentures': Debentures are a common term used to describe unsecured bonds. They are issued based on the issuer's promise to pay and are not tied to any physical assets.
Differentiate between the options provided: Callable bonds can be redeemed by the issuer before maturity, mortgage bonds are secured by specific assets, and convertible bonds can be converted into equity. These terms do not describe unsecured bonds.
Identify the correct term: Based on the definitions, 'debentures' is the term that aligns with the description of unsecured bonds.
Conclude that the correct answer is 'debentures' as it is synonymous with unsecured bonds in financial terminology.
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