Economics Bonds Questions
The main difference between a secured bond and an unsecured bond lies in the collateral or assets backing the bond.
A secured bond is backed by specific assets or collateral, which can be seized and sold by the bondholder in case of default. This provides an added layer of protection for the bondholder, as they have a claim on the specified assets if the issuer fails to make interest or principal payments. In the event of default, the bondholder has a higher chance of recovering their investment through the sale of the collateral.
On the other hand, an unsecured bond, also known as a debenture, is not backed by any specific collateral. It relies solely on the issuer's creditworthiness and ability to make timely interest and principal payments. In case of default, the bondholder does not have a specific claim on any assets and may have a lower chance of recovering their investment compared to secured bondholders.
Overall, the key distinction between secured and unsecured bonds is the presence or absence of collateral, which affects the level of risk and potential recovery for bondholders.