Which corporate bond is not secured by physical assets or collateral?

Which corporate bond is not secured by physical assets or collateral?

• A. Debentures
• B. Mortgage bonds
• C. Equipment Trust Certificates
• D. Subordinated debentures

Answer: (A)

The main idea here is collateral. Some corporate bonds are secured by specific assets, giving investors a claim to those assets if the issuer defaults. Mortgage bonds are backed by real estate, and Equipment Trust Certificates are secured by the financed equipment. A debenture, by contrast, is unsecured and relies on the issuer’s general creditworthiness rather than a pledged asset. Subordinated debentures are also typically unsecured but carry a lower priority in repayment; the distinction tested is the absence of collateral, which makes debentures the best answer.

The main idea here is collateral. Some corporate bonds are secured by specific assets, giving investors a claim to those assets if the issuer defaults. Mortgage bonds are backed by real estate, and Equipment Trust Certificates are secured by the financed equipment. A debenture, by contrast, is unsecured and relies on the issuer’s general creditworthiness rather than a pledged asset. Subordinated debentures are also typically unsecured but carry a lower priority in repayment; the distinction tested is the absence of collateral, which makes debentures the best answer.