Chapter 2E

Front 1

Full Cash Refunding

Back 1

Aka Gross refunding

Relies solely on cash proceeds from the refunding bonds with out reinvesting them to pay D/S

Front 2

Net Cash Refunding

Back 2

Sources of the refunding are proceeds plus other (DSRF and Cash on hand)

Front 3

Pre-refunding

Back 3

Advance refunding that redeems the refunded bonds at the earliest possible call date

Front 4

Escrowed to maturity refunding

Back 4

Issuer holds refunded bonds to maturity

Front 5

Cross over Refunding

Back 5

Original rev continues to pay D/S, proceeds from the refunding bonds are placed in escrow and used at first only to make D/S payments on the refunding bonds, after the call date of the original bonds (aka the bonds to be refunded), the refunding bonds escrow account crosses over and pays the principal and call premium to retire the refunded bonds

Front 6

SLGS: Time deposits

Back 6

Time Deposit

1. Certificate of indebtedness: maturities lasting 15 days to a year

2. Notes: Mature between 1 to 10 years

3. Bonds: mature 10 to 40 years

4. Interest rate is 1 bps below the rate on treasuries

Front 7

Open Market Securities

Back 7

1. Treasury notes and bonds whose price is determined through competitive bidding process

Front 8

SLGS Demand Deposits

Back 8

1. issue one day certificates of indebtedness that are automatically rolled over with interest each day until redemption is requested

2. Interest is accrued and added to principal daily, interest rate is based on an adjustment of the average yield for 3-month UST

Front 9

Guaranteed Investment Contract (GIC

Back 9

1. Issued by insurance companies

2. Company will repay Principal at maturity and give I payments along the way

3. IR agreed upon in advance so you don't have to worry about surpassing yield restrictions

Front 10

Money Market Securities

Back 10

1. Debt securities maturing in 397 days or less (aka 1 year)

2. Very liquid= cash equivalent

3. interest is really low yield, so risky because sometimes can't keep up with inflation

ex. T-bills, CP, Tax-exempt, muni-notes

Front 11

Certificate of Deposit

Back 11

1. Investment vehicle with fixed IR and maturity date

2. Issued by banks and insured by FDIC

3. generally provide better return than savings account, but if you withdraw money early you have to pay a penalty

Front 12

Step Up + Step Down CDs

Back 12

1. step up CD: investors can opt out of initial IR and go up to a higher current IR (can only go up a few times) (starts at lower IR)

2. Step Down: Opt out of a higher interest rate, after a specified period to a lower rate (starts at higher rate)

Front 13

Commercial Paper

Back 13

1. Large corps, financial firms, banks with high credit ratings can issue it to cover short-term needs such as payroll and inventory

2. Unsecured, discount, matures in less than 90 days (sometimes 270 days)

3. Generally considered as safe because it's so short

Front 14

Bankers Acceptance

Back 14

1. Short-term credit instruments by a business for the purchase or sale of goods

2. Usually used in international market, considered secure

3. not generally used by muni investors

Front 15

Asset Backed-Securities

Back 15

Hybrid known as a securitized bond (debt obligations that represent claims on CF from pools of loans)

Backed by an asset that acts as the loans collateral

Front 16

Mortgage backed Securities

Back 16

1. pass through securities because payment goes directly to investor

2. securitized bond backed by mortgage payments of a pool

3. Because mortgage owners can refinance, MBS holders are subject to prepayment risk and extension risk

Front 17

Collateralized Mortgage Obligatiosn

Back 17

1. A pass through security that offer a range of coupons and maturities

2. the Principal is amortized over the life of the debt

3. They come in tranches so investors can pick the amount of risk

4. Tranches with the lowest exposure to prepayment risk have the lowest yield

5. interest on CMOs is taxable

Front 18

Estimated Prepayment Risk

Back 18

1. Use average life to calculate it becuase the stated maturity won't be acurate because people may pay it down faster or slower

Front 19

Average life

Back 19

Average time each dollar of principal in the pool is expected to be outstanding