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Answer: The safety of a guaranteed bond depends on the financial capability of the guarantor AND the financial capability of the issuer.
The correct answer is **B**. A guaranteed bond is only as safe as the creditworthiness of the parties standing behind it. The issuer’s ability to pay matters, and if the issuer cannot pay, the guarantor’s ability to make good on the guarantee becomes critical. Why the others are false: - **A**: Guaranteed bonds are not risk-free; the guarantor can still default. - **C**: A bond may have more than one guarantor. - **D**: A guarantee can cover both principal and interest.
Author: Manit Arora
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Q-1.6. Which of the following is TRUE about a Guaranteed Corporate Bond?
A
Guaranteed bonds are free of default risk
B
The safety of a guaranteed bond depends on the financial capability of the guarantor AND the financial capability of the issuer.
C
A guaranteed bond may not have more than one corporate guarantor
D
A guarantee may call for the guarantor to guarantee the repayment of principal, but is NOT permitted to call for the guarantor to guarantee the payment of interest
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