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13 Cards in this Set
- Front
- Back
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Deferred Call Provision |
Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date |
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Bonds |
A long-term debt security that provides for fixed payments at designated times. Bondholders do not have ownership rights Bondholders cannot vote Bondholders have priority over Shareholders in liquidation Interest payments to bond holders are tax-deductible to the firm |
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Call Provision |
Enables the firm to retire the bonds prior to maturity by “calling” the bonds. If called, the Issuer must pay the “call price” for each bond. |
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Protective Covenants |
Negative Covenant - prohibits firm from engaging in some action Positive Covenant - requires firm to engage in some action |
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Bond Rating |
A firm's creditworthiness AAA - highest rating BBB or higher - "investment grade" BB or below - "junk bonds" Moody and S&P are primary bond agencies |
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Bonds: What happens if interest rate goes up? |
Bond value goes down. |
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Bonds: What happens if interest rate goes down? |
Bond value goes up. |
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Indenture |
Bond contract that specifies the obligations of the Issuer (firm), the rights of the Bond holder, and other important features |
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What is the coupon rate? |
interest paid on the bond |
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What is a call price? |
Call price = Face Value + One Year interest |
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Bond Face Value (Par Value) |
the amount that will be repaid at the end of the bond term |
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Bond Maturity Date |
the date the principle amount is to be repaid to the bondholder |
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Fischer Effect |
R - nominal rate (yield to maturity rate) r - real rate h - inflation |
