Exam CIFC Topic 1 Question 222 Discussion

Actual exam question for IFSE Institute's CIFC exam
Question #: 222
Topic #: 1

What statement CORRECTLY describes a key difference between bonds and debentures?

A. Regular secured bonds offer a higher level of income than debentures. B. Bonds are secured by the specific assets of a company whereas debentures are not secured by real assets or collateral. C. Debentures have higher priority than bondholders for the company's assets in the event that the company goes bankrupt. D. Debentures are considered high risk because they are not backed by the reputation or credit worthiness of the issuer.

Suggested Answer: B Vote an answer

Explanation
Bonds and debentures are both types of debt instruments that can be issued by corporations or governments to raise capital. However, they differ in the way they are secured. Bonds are backed by the specific assets of the issuer, such as property, equipment, or inventory. This means that if the issuer defaults on the bond payments, the bondholders have a claim on those assets and can sell them to recover their money. Debentures, on the other hand, are not secured by any real assets or collateral. They are only backed by the general creditworthiness and reputation of the issuer. This means that if the issuer defaults on the debenture payments, the debenture holders have no recourse to any specific assets and have to rely on the issuer's ability to pay from its future earnings or liquidation proceeds.
References: Canadian Investment Funds Course, Unit 5, Section 5.1

by Berton at Mar 27, 2025, 06:18 PM

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