Question

1(a). (TRUE or FALSE?) An unsecured bond is backed by specific assets pledged by the issuing corporation.

1(b). (TRUE or FALSE?) With a variable-rate bond, the initial principal, face value, of the bond is adjusted according to an established timetable and a market rate index such as a Treasury bond rate or the London Interbank Offer Rate (LIBOR).

1(c). (TRUE or FALSE?) Owners of preferred stock have a priority claim over common stockholders to the earnings and assets of a corporation.

Answer 1

1(a). False

An unsecured bond is not backed by any asset and if bankruptcy occurs for the issuing corporation, repayment is not guarateed by any property or earnings.

1(b). False

Under a variable rate bond, the interest rate on the bond varies with the market rate index like Treasury bond or LIBOR and the face value remains the same throughout the life of the bond.

1(c). True

Yes, Preference shareholders have a priority claim over common stockholders to the earnings and assets of a corporation.