Question

These bonds are collateralized securities with first claims in the event of bankruptcy. These bonds are not backed by any physical collateral. They are backed by the reputation and creditworthiness of the issuing company. These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates.

Answer 1

Subordinated debentures - Ranks the lowest in terms of priority with regards to claim on assets, is the riskiest of all. Higher the risk, higher would be the return offered on the bond.

Debentures - These bonds are those which are not backed by any collateral. Issued by both corporations as well as governments, debentures are backed only by the general creditworthiness and reputation of the issuer.

Senior Mortgage Bonds - 'Senior' means they rank high in terms of claims on assets and 'Mortgage' implies they are backed by collateral.