Course 106: The Role of Collateral
Advantage of Collateral
In this course
1 Introduction
2 Collateral
3 Collateral Used to Secure Bonds
4 Collateral Reduces Default Risk
5 Collateralized Securities May Offer Lower Rates
6 Advantage of Collateral

Adding collateral to a security can make it more desirable to own. By using a pledged asset to guarantee repayment of a security's debt, an investor does not have to lose any sleep worrying about his or her investment defaulting. However, there is a tradeoff in the yields of corporate securities backed by collateral. Ultimately, your decision will come down to how safe you want to play it.

As an educated investor, you should be able to explain the purpose of collateral, identify the different types of collateral used to secure investments, and understand the pros and cons of collateralized securities.

 

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