Series 7 practice questionmediumDebt Securities — Corporate Bonds — Equipment Trust Certificate
An equipment trust certificate is a type of secured bond backed by:
- AThe issuer's inventory and accounts receivable
- BSpecific equipment or rolling stock such as railroad cars or aircraft✓ Correct answer
- CThe issuer's real estate holdings
- DA guarantee from an insurance company
Explanation
Why B — Specific equipment or rolling stock such as railroad cars or aircraft
Equipment trust certificates are secured bonds collateralized by specific pieces of equipment, commonly used by transportation companies (railroads, airlines, trucking companies). The equipment is held in trust by a trustee, and if the issuer defaults, the trustee can sell the equipment to repay bondholders. Title to the equipment does not pass to the issuer until the bonds are fully paid.
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