Series 7 practice questioneasyDebt Securities — Corporate Bonds — Debentures
A debenture is best described as:
- AA bond secured by equipment owned by the corporation
- BA government-guaranteed corporate obligation
- CA bond convertible into preferred stock
- DAn unsecured bond backed only by the full faith and credit of the issuing corporation✓ Correct answer
Explanation
Why D — An unsecured bond backed only by the full faith and credit of the issuing corporation
A debenture is an unsecured corporate bond that is not backed by specific collateral but rather by the general creditworthiness and reputation of the issuing corporation. Because debentures carry more risk than secured bonds, they typically offer higher interest rates. A subordinated debenture has an even lower claim priority than a regular debenture.
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