420 Ch. 6

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coupon

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c 1. The stated interest payment made on a bond is called the:

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face value

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b 2. The principal amount of a bond that is repaid at the end of term is called the par value

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the coupon rate is best defined as

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e. annual coupon divided by the face value of a bond.

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the date on which the principal amount of a bond is paid is referred to as the

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maturity

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a 5. The rate required in the market on a bond is called the:

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yield to maturity

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a premium bond is a bond that

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has a market price which exceeds the face value

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a bond which sells for less than the face value is

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discount bond

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current yield is defined as

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annual coupon divided by the market price

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the written agreement between the corporation and its creditors is called the

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bond indenture

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When interest payments on a bond are made directly to the owner of record, the bond is said to be in _____ form.

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registered

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When interest payments are made to whoever holds the bond, the bond is said to be in _____ form.

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bearer

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a debenture is a

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unsecured debt which genrally matures in 10+ years

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an unsecured debt which generally matures in less than 10 years

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note

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14. A sinking fund is an account managed by the bond trustee for the purpose of:

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redeeming bonds early

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The right of the bond issuer to repurchase the bond at a predetermined price prior to maturity is referred to as the

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call provision

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16. The call premium is the amount by which the:

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call protected bond

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The stipulations in a bond indenture agreement which limit the actions a firm can take while the bond issue is outstanding are called

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protective convenants

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nickna e for a bond issued by a state is

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muni

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deep discount bond that pays no regular interest payment is called

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zero coupon bond

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price at which you can sell a bond and at which the dealer will purchase it is called the

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bid price

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The price a dealer is willing to take for a security is called the _____ price.

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asked

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c 24. The profit that a dealer earns on the purchase and subsequent resale of a bond is called

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spread

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An interest rate that has been adjusted for inflation is called a _____ rate.

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real

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The rate of return you earn on an investment before adjusting for inflation is called the
_____ rate

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nominal

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The clean price of a bond is the price:

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excluding any accrued interest

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The dirty price of a bond is the price:

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e. including any accrued interest to date.

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The Fisher effect addresses the relationship between:

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c. inflation, real, and nominal rates.

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The pure time value of money, as illustrated by the nominal interest rates on default-
free, pure discount bonds, is called the:

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term structure of interest rates

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The compensation investors require to offset expected future increases in prices is
called the

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inflation premium

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When the yields of Treasury notes and bonds are plotted on a graph in relation to their
respective times to maturity, the resulting curve is called the Treasury _____ curve.

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yield

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The portion of a bond’s yield that compensates investors for the possibility that the
bond’s interest or principal might not be paid is called the:

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default risk premium

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The extra compensation investors demand for a corporate bond over that of a
comparable municipal bond is called the

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taxability premium

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The liquidity premium is the portion of a nominal interest rate that represents
compensation for the

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lack of the ability to sell the bond at its fair value in a timely manner.