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23 Cards in this Set
- Front
- Back
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What is a long-term debt instrument in which a borrower agrees to make payments of principal and interest, on specific dates? |
bond |
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What is a representative of a type of loan? |
bond |
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A bond is a way for an organization (firm or government, usually) to what? |
to borrow money from whomever wants to invest |
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Bonds are primarily traded in which market? |
over-the-counter (OTC) market. |
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Most bonds are owned by and traded among what? |
large financial institutions. |
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What is more commonly called the face amount of the bond and is paid at maturity? |
par value |
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What is stated interest rate (generally fixed) paid by the issuer? |
Coupon interest rate |
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What is the time until the bond must be repaid? |
Maturity date |
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What is it called when the bond was issued? |
Issue date |
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What is the rate of return earned on newly issued bonds if held until maturity? |
Yield to maturity |
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Why are stakeholders are more likely to prefer riskier projects? |
because they receive more of the upside if the project succeeds |
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Why are bondholders receiving fixed payments are more interested in limiting risk? |
to ensure they get repaid |
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Bondholders are particularly concerned about the use of what? |
additional debt |
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Bondholders attempt to protect themselves by including what? |
covenants in bond agreements that limit the use of additional debt and constrain managers’ actions |
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If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? |
the values of callable bonds will not rise by as much as those of bonds without the call provision. |
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If interest rates rise after a bond issue, what will happen to the bond's price and YTM? |
The price of the bond will fall and its YTM will rise if interest rates rise |
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Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
-The bond's price increases. |
decrease |
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Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
-The bond is downgraded by the rating agencies. |
increase |
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Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
-A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy. |
increase |
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Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
-The economy seems to be shifting from a boom to a recession. Discuss the effects of the firm's credit strength in your answer. |
increase |
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Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
-Investors learn that the bonds are subordinated to another debt issue. |
increase |
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Would the yield spread on a corporate bond over a Treasury bond with the same maturity tend to become wider or narrower if the economy appeared to be heading toward a recession? |
widen |
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Would the change in the spread for a given company be affected by the firm's credit strength? |
yes, it would be wider |
