Answer the following statements true (T) or false (F)
1. An after-acquired property clause means that any new property acquired is placed under the original mortgage claim.
2. If a corporation offers greater protection to a given class of bondholders, it must raise the interest rate on its bonds to make them more attractive to investors.
3. Because of the legal problems associated with specific asset claims in a secured bond offering, the trend is for companies to issue more debentures.
4. During a default situation, a bondholder is better off with a secured loan because debenture bonds don't give the bondholder any protection.
5. The call feature is usually advantageous to the bondholder.
1. TRUE
2. FALSE
-In keeping with risk/return, greater protection lowers risk, therefore investors cannot expect as great a return as if that protection were absent.
3. TRUE
4. FALSE
-Debenture bonds can allow the bondholder claims against the entire company, rather than just one specific secured asset.
5. FALSE
-The call feature allows the issuer greater control over when to prepay and retire bonds. The ability to control holding the bond for longer periods up to maturity is removed from the bondholders, placing them at a disadvantage.
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