Canadian Securities Course (CSC) Level 1 Practice Exam

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What is a guaranteed bond?

  1. A bond secured against tangible assets

  2. An insured bond

  3. A bond with repayment ensured by the government

  4. A bond with fixed coupon payments

The correct answer is: A bond with repayment ensured by the government

A guaranteed bond often refers to a bond for which the repayment of principal and interest is assured by a third party, typically a government entity or a highly-rated institution. This guarantee provides investors with heightened security, as it means that in the event of default by the issuer, the guarantor is responsible for making payments. The nature of this bond makes it an attractive investment for risk-averse individuals or institutions looking for predictable returns and lower credit risk. In many cases, government-backed securities are seen as some of the safest investments available, which is why the guarantee provided by the government is a significant characteristic of these types of bonds. Other options do not align with this definition of a guaranteed bond: a bond secured against tangible assets refers to asset-backed securities, an insured bond implies that an insurance company is backing the bond but doesn't specify the government, and a bond with fixed coupon payments only describes the payment structure of the bond, not its guarantee status.

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