When a borrower pledges financial assets as collateral for a bond it is called a(n)
A) Mortgage bond.
B) Equipment trust certificate.
C) Mortgage pass-through security.
D) Collateral trust bond.
E) Collateralized mortgage obligation (CMO).

Question

Quizplus · Accepted Answer

A collateral trust bond is a bond that is backed by a pledge of financial assets as collateral. The borrower pledges financial assets to a trustee who holds them in trust for the benefit of the bondholders. If the borrower defaults on the bond, the trustee can sell the collateral to recover the bondholders' principal and interest payments.

When a Borrower Pledges Financial Assets as Collateral for a Bond