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30 Cards in this Set
- Front
- Back
2 General catergories of of Fixed income securities
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1. Debt Obligations
2. Preferred Stock |
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What is in a bond's indenture
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1. Promises of Insurer
2. rights of the bondholder 3. Identifies the trustee who monitors the debt contract |
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3 reasons why "Term to Maturity" is important.
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1. Time period before interest will be repaid in full
2. Yield Curve 3. Volatility of a bond is a function of its maturity |
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Par Value other names
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1. Principal Value
2. face value 3. maturity value |
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Pricing a bond
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1. 90.5=.0950 * 1000(par value)=905.00
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Coupon Rate other name
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Nominal rate
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Floating rate securities coupon formula
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Coupon Rate=reference rate + Quoted Margin
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Example of Floating rate coupon forumula:
Ref Rate: 1 month libor Quoted Margin: 100bps |
coupon rate= Libor + 100bps
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Inverse Floaters formula
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Coupon Rate= K-L * (Reference rate); where K and L are values specified in the prospectus
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Inverse Floater Example 1
CR=20%-2*(3mosTbill) 3mosTbill=6% |
8%
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Inverse Floater Example 2
CR=20%-2*(3mosTbill) 3mosTbill=5% |
10%
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Full Price
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Agreed upon price for the bond + accrued interest
aka Dirty Price |
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Cum Coupon
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when the buyer must pay the accrued interest to the seller
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Ex Coupon
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when the buyer does not pay the seller the accrued interest
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Bullet Maturity structure
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when the issuer of a bond pays it all off in one lump sum at the end of the maturity cycle
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Deferred Call
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The first available date that an issue can be called.
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Pro Rata redemption
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when only a certain amount of bonds from an issue are called. Bonds are selected using a computer program to select serial numbers. More common for private placements than large public offerings
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3 types of Call Price
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1. Fixed regardless of call date
2. Based on a price specified in the call schedule 3. based on a make whole premium provision |
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Make whole premium
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sets the amount for the premium, such as that when added to the principal amount and reinvested at the redemption date in US treasury securities having eh teh same remaining life, it would profide a yield equal to the issuer's original yield
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Non Callable
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The issuer is never allowed to call his bonds
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Non Refundable
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The issuer is not allowed to use funds from a subsequent bond issue at a lower rate to pay the higher rate in full
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Sinking Fund
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a pool of capital that is paid out over time that provides the return of capital to the bondholder
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2 Types of Sinking Funds
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1. Cash Payment
2. Delivery of Securities |
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Cash Payment Sinking Fund
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1. Cash Payment -- trustee of bond issue will retire a certain amount of bonds per cycle. Bonds will be chosen via lottery.
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Delivery of Securities Sinking Fund
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The issuer will purchase the necessary quantity of bonds in the open market and deliver them to the trustee who will retire them
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Regular Redemption Prices
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Anytime bonds are redeemed according to the normal covenants and/or call provisions of a bonds issue
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Special redemption prices
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Any type of a forced asset sale by a government or regulatory authority
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Embedded Security Owner Bond Options
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1. Conversion option
2. Put provision 3. Floor |
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Embedded Issuer Bond Options
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1. Call Provision
2. Prepayment option 3. Accelerated Sking Fund 4. Cap |
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Repurchase Agreement
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When a seller agrees to obtain short term cash via bond liquidity by selling his bonds and agreeing to buy them back at a higher price --the defacto interest rate-- at a later date
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