Question

Which one of the following securities is considered unsecured?

	a.	$500,000, 6.2% debenture bonds
	b.	$650,000, 8.1% unsubordinated bonds
	c.	$300,000, 4% ten-year callable bonds
	d.	$800,000, 5.5% convertible bonds

Answer 1

Security which is considered unsecured:

Option A: 5,00,000 6% debenture bonds

Explanation:

The term debenture bond refers to debts issued by company that is not secured by collateral. So these type of bonds are unsecured security.

Explanation for other options, why they are not considered unsecured are:

Option B

Unsubordinated debt are also known as senior security debt as these are the type of obligation that must be repaid before any other form of debt. So holders of unsubordinated debt have first claim over company's asset or earnings, if company goes bankrupt. So they comes with guarantee of repayment they are considered less risky than other type of debt.

Option C

10 year callable bonds, these are the redeemable bond, that the issuer may redeem before it reached stated maturity date. So these are in a way not unsecured.

Option D

Convertible bonds  is a hybrid corporate debt security that comes with both debt and equity components. Unlike regular bonds that are redeemed upon maturity, a convertible bond gives the purchaser a right or an obligation to convert the bond into shares of the issuing company. So if company is not in a position to redeem the debenture the investor has option to convert them in equity. So these are also less riskier than option A security which is debenture bond.