Which type of bond is backed by assets and earnings of the issuing company?

Which type of bond is backed by assets and earnings of the issuing company?

• A. Corporate bond
• B. Debenture
• C. Mortgage bond
• D. Secured bond

Answer: (B)

The correct answer is a debenture bond. This type of bond is specifically unsecured, meaning it is not backed by physical assets or collateral. Instead, debenture holders rely on the creditworthiness and earnings of the issuing company for repayment. The issuer's ability to generate income plays a crucial role in ensuring that these bonds can be redeemed at maturity. While the term "secured bond" might seem tempting, as it refers to bonds backed by specific assets, debentures do not fall under this category. A mortgage bond, on the other hand, is a type of secured bond that is backed by real estate assets, while a corporate bond can be either secured or unsecured, depending on the terms defined by the issuing company. Understanding these distinctions clarifies why debentures are unique in their reliance solely on the company's financial health rather than physical collateral.

The correct answer is a debenture bond. This type of bond is specifically unsecured, meaning it is not backed by physical assets or collateral. Instead, debenture holders rely on the creditworthiness and earnings of the issuing company for repayment. The issuer's ability to generate income plays a crucial role in ensuring that these bonds can be redeemed at maturity.

While the term "secured bond" might seem tempting, as it refers to bonds backed by specific assets, debentures do not fall under this category. A mortgage bond, on the other hand, is a type of secured bond that is backed by real estate assets, while a corporate bond can be either secured or unsecured, depending on the terms defined by the issuing company. Understanding these distinctions clarifies why debentures are unique in their reliance solely on the company's financial health rather than physical collateral.