Answer-first summary for fast verification
Answer: In a corporate mortgage bond, the lien tends to create negative convexity at lower yields
The exception is **D**. A corporate mortgage bond is simply a **secured bond** backed by a mortgage lien on property. The lien does not normally create the kind of **negative convexity** associated with prepayable mortgage-backed securities. The other statements are true: - **A**: Mortgage bonds typically involve a first-mortgage lien on substantial assets. - **B**: A lien gives the lender a legal claim on the mortgaged property. - **C**: Because the debt is better secured, the issuer can usually borrow at a lower interest rate.
Author: Manit Arora
Ultimate access to all questions.
Q-1.3. Each of the following is true about a corporate mortgage bond EXCEPT:
A
A mortgage bond grants the bondholders a first-mortgage lien on substantially all its properties
B
A lien is a legal right to sell mortgaged property to satisfy unpaid obligations to bondholders
C
As a result of a first-mortgage lien, which provides additional security for the bondholder, the issuer is able to borrow at a lower rate of interest than if the debt were unsecured.
D
In a corporate mortgage bond, the lien tends to create negative convexity at lower yields
No comments yet.