Which type of financial obligation carries a higher risk due to lack of asset security?

Unsecured notes are indeed characterized by a higher risk due to the absence of asset security. When an entity issues unsecured notes, it is borrowing money without pledging specific assets as collateral. This means that if the borrowing entity defaults on its obligations, there are no specific assets that lenders can claim to recoup their investments. This elevated risk typically translates into higher interest rates for unsecured notes compared to secured debt instruments, wherein lenders have claims on collateralized assets.

In contrast, commercial bills are typically secured through short-term, liquid assets or are often backed by a bank, which reduces risk. Mortgages involve loans secured against real estate, thus providing a safety net for lenders in case of default. Leasing agreements usually involve asset-backed financing, where the asset being leased serves as collateral. Therefore, it is clear that unsecured notes expose investors to greater risk due to the lack of secured collateral.