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:

DescriptionType of BondThese 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.

Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is true?

BBB bonds usually have the lowest yields in the bond markets.

US government bonds usually have the lowest yields in the bond markets.

In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 20082009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example:

In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise.

Source: Circuit City to Shut Down. CNN Money. Cable News Network, n.d. Web. August 31, 2010. http://money.cnn.com/2009/01/16/news/companies/circuit_city

This is an example of:

Liquidation

Reorganization