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Distinguish between secured and unsecured bonds and identify which will most likely have a higher yield...

Distinguish between secured and unsecured bonds and identify which will most likely have a higher yield to maturity.

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Answer #1

Difference between secured bonds and unsecured bonds are as follows-

Secured bonds are those bonds which are secured by an asset or a collateral and they will be having a higher probability of getting repaid at the The Times of liquidation.

Unsecured bonds are those bonds which are not secured and they will be just like normal debt and they are not repaid first in terms of liquidation.

Secured bonds will be having a lower yield whereas unsecured bonds will be having a higher yield.

Secured bonds will be having preferential claim on the assets at the time of liquidation and they will be treated as senior debt whereas unsecured bonds will be having non-preferential claims and they will not be treated as senior debt.

Unsecured bonds will be having higher yield to maturity because of high level of risk associated with them.

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