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Default risk is often referred to as credit risk and

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Unformatted text preview: is an attractive coupon rate or high yield­to­maturity. Convertible bonds (Debenture) give the investor the option to convert the bonds into shares of common stock. The conditions, the time frame, and the price must all be set down at the time the bonds are issued. 55 55 Types of secured Bond Mortgage bonds are secured. corporate bonds that are backed primarily by real estate, although they may include other corporate assets such as equipment as well. Because mortgage bond collateral provides a clear claim on a company's assets, mortgage bonds are considered high­grade and safe from default. A trustee acting on behalf of bondholders holds the collateral; if the bond defaults, this trustee may foreclose for the bondholders. Coupon rate is lower 56 56 Types of secured Bond Mortgage bonds may be either first mortgage bonds or junior mortgage bonds. Should an issuer have to liquidate, first mortgage bonds are paid off before juniors are. To finance projects such as bridges, hospitals, and power plants, municipalities sell revenue bonds (or limited obligation bonds). The anticipated revenue generated by those...
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