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28 Cards in this Set
- Front
- Back
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a long term contract under which a borrower agrees to make payments of interest and pricipal on specific dates to the holders
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bond
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bonds issued by the federal government
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treasury bonds
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bonds issued by corporations
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corporate bonds
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bonds issued by state and local governments
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municipal bonds
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the major advantage of municipal bonds over other bonds
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interest earned on most municipal bonds is exempt from state and local taxes
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bonds issued by either foreign governments or foreign corporations
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foreign bonds
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early repayment is also called
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call
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the stated face value of the bond
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par value
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the specified number of dollars interest paid each year
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coupon payment
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the stated annual interest rate on a bond
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coupon interest rate
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a bond whose interest rate fluctuates with shifts in the general level of interest rates
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floating rate bond
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a bond that pays no annual interest but is sold at a discount
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zero coupon bond
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any bond originally offered at a price below its par value
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Original Issue Discount (OID) Bond
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A specified date on which the par value of a bond must be repaid
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maturity date
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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
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call provision
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a deferred call is when
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bonds that have a waiting period before becoming callable
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When a company takes advantage of a rate drop to issue low yeilding securities to pay off high interest debt
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refunding operation
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a provision in a bond contract that requires the issuer to retire a portion of the bond issue each year
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sinking fund provision
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what effects can a sinking fund have on a business
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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
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The issuer can handle a sinking fund in two ways
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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 |
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why do sinking funds sometimes work to the detriment of the bondholders
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requres them to give up a bond that pays more interest than is available on the market
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a bond that is exchangeable at the option of the holder for the issuing firms common stock
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convertible bond
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a long term option to buy a stated mumber of shares of common stock at a specified price
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warrant
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a bond with provisions that allw its investor to sell it back to the company proir to maturity at a pre-arranged price
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putable bond
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a bond that pays interest only if it is earned
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income bond
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_____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
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convertible bonds
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a bond that has interst payments based on an iflation index so as to protect the holder from inflation
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indexed, or purchasing power bond
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the cash flows for a standard coupon bearing bond, consist of
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interest payments during the bond's life plus the amount borrowed when the bond matures.
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