Collateral agreements for a note or bond can:
A)Reduce the risk of loss in comparison with unsecured debt.
B)Increase the risk of loss in comparison with unsecured debt.
C)Have no effect on risk.
D)Reduce the issuer's assets.
E)Increase total cost for the borrower.

Question

Quizplus · Accepted Answer

Collateral agreements for a note or bond provide security for the lender by requiring the borrower to pledge assets as collateral for the debt. This reduces the risk of loss for the lender in comparison with unsecured debt, as the lender has a legal claim on the pledged assets in the event of default. Therefore, Choice A is the best option.

Collateral Agreements for a Note or Bond Can