10. More on types of bonds A legal document that details the rights of bondholders and the issuer is called If the legal document just described includes a sinking fund provision, is the bond considered to have more or less default risk, all else being equal? Less default risk More default risk You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table that follows: Type of Bond Description These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. These bonds are traded in the bond markets based on investors' belief that the issuer will not default on the repayment. These bonds have no collateral and usually offer higher yields. These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates. Ambac Financial Group, MBIA Inc., Federal Guaranty Insurance Company, Assured Guaranty, and CIFG are some of the municipal bond insurance companies in the United States. Municipal bond insurance companies guarantee to pay if the issuer defaults. Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is true? O During an economic recession and in a pessimistic environment, the yield spread between U.S. government bonds and corporate bonds could be higher than during good economic times. During a period of economic growth and in an optimistic environment, the yield spread between U.S. government bonds and corporate bonds could be higher than during an economic recession and a pessimistic environment