Which statement about secured debt securities is true?

• A. They are backed by the issuer's reputation and credit alone
• B. They are backed by assets of the issuing corporation
• C. They are not tradeable in the market
• D. They pay interest annually

Answer: (B)

Secured debt is debt that has specific assets pledged as collateral, with a lien on those assets to guarantee payment. Because of that collateral, these securities are backed by the assets of the issuing corporation, which is why this statement is true. This contrasts with unsecured debt, which relies on the issuer’s creditworthiness alone and has no pledged collateral. The idea that secured debt isn’t tradeable in the market isn’t correct—these bonds are typically bought and sold just like other bonds. The notion that they pay interest annually isn’t a defining feature; interest can be paid at various frequencies (often semiannually), depending on the issue.