Asked by Tyree McDonald on Jun 22, 2024
Verified
Collateral agreements for a note or bond can:
A) Lower the risk in comparison with unsecured debt.
B) Increase the risk in comparison with unsecured debt.
C) Have no effect on risk.
D) Reduce the issuer's assets.
E) Increase total cost for the borrower.
Collateral Agreements
Legal contracts where a borrower pledges an asset as security for a loan, which the lender can claim if the loan is not repaid.
- Comprehend the importance of collateral agreements in safeguarding notes and bonds.
Verified Answer
SD
Stoney DillardJun 26, 2024
Final Answer :
A
Explanation :
Collateral agreements provide security for lenders by offering a specific asset or set of assets that can be used to repay the debt in the event that the borrower defaults. This decreases the risk associated with the loan and can lead to a lower interest rate for the borrower.
Learning Objectives
- Comprehend the importance of collateral agreements in safeguarding notes and bonds.
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