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28 Cards in this Set

  • Front
  • Back
a long term contract under which a borrower agrees to make payments of interest and pricipal on specific dates to the holders
bonds issued by the federal government
treasury bonds
bonds issued by corporations
corporate bonds
bonds issued by state and local governments
municipal bonds
the major advantage of municipal bonds over other bonds
interest earned on most municipal bonds is exempt from state and local taxes
bonds issued by either foreign governments or foreign corporations
foreign bonds
early repayment is also called
the stated face value of the bond
par value
the specified number of dollars interest paid each year
coupon payment
the stated annual interest rate on a bond
coupon interest rate
a bond whose interest rate fluctuates with shifts in the general level of interest rates
floating rate bond
a bond that pays no annual interest but is sold at a discount
zero coupon bond
any bond originally offered at a price below its par value
Original Issue Discount (OID) Bond
A specified date on which the par value of a bond must be repaid
maturity date
a provision in a bond contract that gives the issueer the right to redeem the bonds under specified terms prior to the normal maturity date
call provision
a deferred call is when
bonds that have a waiting period before becoming callable
When a company takes advantage of a rate drop to issue low yeilding securities to pay off high interest debt
refunding operation
a provision in a bond contract that requires the issuer to retire a portion of the bond issue each year
sinking fund provision
what effects can a sinking fund have on a business
when a business fails to meet the sinking fund requirement it is in default and could be forced into bankruptcy, so it puts a significant cash drain on the firm
The issuer can handle a sinking fund in two ways
1. call in for redemption a certain at par value a certain percentage of the bonds each year

2. The company can buy the required bonds on the open market
why do sinking funds sometimes work to the detriment of the bondholders
requres them to give up a bond that pays more interest than is available on the market
a bond that is exchangeable at the option of the holder for the issuing firms common stock
convertible bond
a long term option to buy a stated mumber of shares of common stock at a specified price
a bond with provisions that allw its investor to sell it back to the company proir to maturity at a pre-arranged price
putable bond
a bond that pays interest only if it is earned
income bond
_____have lower coupon rates than noncovertible debt with similar credit risk, but they offer investors the chance for capital gains as compensation for the lower coupon rate
convertible bonds
a bond that has interst payments based on an iflation index so as to protect the holder from inflation
indexed, or purchasing power bond
the cash flows for a standard coupon bearing bond, consist of
interest payments during the bond's life plus the amount borrowed when the bond matures.