Which term refers to a bond's lack of backing by assets?

Which term refers to a bond's lack of backing by assets?

• A. Secured bond
• B. Debenture
• C. Unsecured bond
• D. Collateralized bond

Answer: (C)

The term that refers to a bond's lack of backing by assets is "unsecured bond." Unsecured bonds are not supported by any specific assets or collateral; instead, they are backed solely by the issuer's promise to repay the principal and interest. This lack of security means that if the issuer defaults, bondholders have a general claim on the issuer's assets, but they have no specific assets to claim against. In contrast, a secured bond is backed by specific assets, providing a safety net for investors. In the case of a debenture, while it signifies a type of unsecured bond, the broader definition does not explicitly emphasize the lack of backing by assets as strongly as the term "unsecured bond." A collateralized bond, on the other hand, is specifically tied to certain assets that are pledged as security for the bond. Therefore, the terminology around "unsecured bond" distinctly emphasizes the absence of asset backing, which is crucial for identifying the risk associated with this type of investment.

The term that refers to a bond's lack of backing by assets is "unsecured bond." Unsecured bonds are not supported by any specific assets or collateral; instead, they are backed solely by the issuer's promise to repay the principal and interest. This lack of security means that if the issuer defaults, bondholders have a general claim on the issuer's assets, but they have no specific assets to claim against.

In contrast, a secured bond is backed by specific assets, providing a safety net for investors. In the case of a debenture, while it signifies a type of unsecured bond, the broader definition does not explicitly emphasize the lack of backing by assets as strongly as the term "unsecured bond." A collateralized bond, on the other hand, is specifically tied to certain assets that are pledged as security for the bond.

Therefore, the terminology around "unsecured bond" distinctly emphasizes the absence of asset backing, which is crucial for identifying the risk associated with this type of investment.