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85 Cards in this Set

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Long-term debt instrument issued by a business or govt:
Bond
Bond that is paying less than similar bonds in the market:
Discount bond
Principle amount of bond that is repaid at the end of the term:
Par value (Face value)
Par (face) value < Bond price
Premium bond
YTM > coupon rate
Discount bond
Bonds with longer maturities have greater _____.
Interest rate risk
Annual coupon divided by the face value of a bond:
Coupon rate
YTN < coupon rate
Premium bond
The rate implied by the current bond price:
Yield to maturity
Stated interest payment made on a bond:
Coupon payment
Bond that pays more than similar bonds in the market:
Premium bond
Rate required in the market on the bond:
Yield to maturity
Par (face) value > Bond price
Discount bond
Bonds with _____ have lower interest rate risk.
Shorter maturities
Date on which the principle amount of a bond is paid:
Maturity date
Register of company records ownership and the payment is made directly to the owner:
Registered form
Unsecured - increases risk and required return:
Debentures (i.e. Notes)
Prohibits actions by the firm ("cannot do"):
Negative covenant
Preference over other lenders:
Seniority
Secured by real property, normally land or buildings:
Mortgage
Firm prohibited from calling bond for a period of time:
Deferred call provision
Issuer is required to retire a portion of the bond issue each year:
Sinking fund
Unsecured debt with original maturity less than 10 years:
Notes
Limits certain action by the firm:
Protective covenants
The relationship between nominal returns, real returns, and inflation:
The Fisher Effect
Secured by financial securities:
Collateral
Difference between call price and stated value:
Call premium
Specifies actions that the firm agrees to take ("promise to"):
Positive covenant
Bond that is issued without record of the owner's name; payment is made to whoever holds the bond:
Bearer form
Allows company to repurchase bond issues at stated prices:
Call provision
The difference between the bid price and the asked price:
Bid-ask spread
Quoted rate of interest that is not adjusted for inflation:
Nominal rate of interest
Relationship between nominal interest rates on default-free, pure discount securities and time to maturity:
Term structure of interest rates
What are the 3 factors that affect required return?
1) default risk premium
2) taxability premium
3) liquidity premium
The % change in buying power:
Real rate of interest
YTM = coupon rate
Par bond
DEBT/EQUITY

Creditors do not have voting rights.
Debt
The term structure of interest rates includes what 3 things?
1) inflation premium
2) real rate
3) interest rate risk premium
The % change in the number of dollars:
Nominal rate of interest
Compensation demanded for expected future inflation:
Inflation premium
DEBT/EQUITY

Firm cannot go bankrupt.
Equity
Graphical representation of the term structure:
Yield curve
Rate adjusted for inflation:
Real rate of interest
Compensation demanded for bearing interest rate risk:
Interest rate risk premium
DEBT/EQUITY

Dividends are not a liability of the firm and stockholders have no legal recourse if dividends are not paid.
Equity
Bonds that are in default with principal and interest in arrears:
Very Low Grade

Moody's D and S&P D
Ratings with the lowest degree of speculation:
"B" ratings
Capacity to pay is adequate, adverse conditions will have more impact on the firm's ability to pay:
Medium Grade

Moody's Baa and S&P BBB
Pure discount bonds with original maturity of one year or less:
T-bills
DEBT/EQUITY

Common stockholders vote for the board of directors and other issues:
Equity
Capacity to pay is very strong:
High Grade

Moody's Aa and S&P AA
DEBT/EQUITY

Excess can lead to financial distress and bankruptcy.
Debt
Income bonds with no interest being paid:
Very Low Grade

Moody's C and S&P C
Bonds that are considered speculative with respect to capacity to pay:
Low Grade

a) Moody's Ba, B, Caa, and Ca
b) S&P BB, B, CCC, CC
DEBT/EQUITY

Not an ownership interest.
Debt
What are 4 types of Treasury securities?
1) Federal Govt. debt
2) T-bills
3) T-notes
4) T-bonds
DEBT/EQUITY

Dividends are not considered a cost of doing business and are not tax deductible.
Equity
Capacity to pay is extremely strong:
High Grade

Moody's Aaa and S&p AAA
DEBT/EQUITY

Creditors have legal recourse if interest or principal payments are missed.
Debt
Coupon debt with original maturity greater than ten years:
T-bonds
Upward sloping yield curve with long-term yields that are higher than short-term yields:
Normal yield curve
DEBT/EQUITY

Ownership interest
Equity
Coupon debt with original maturity greater than ten years:
T-bonds
Most bond transactions take place _____.
Over-the-counter
Upward sloping yield curve with long-term yields that are higher than short-term yields:
Normal yield curve
Bonds that make no periodic interest payments:
Zero coupon bonds (coupon rate = 0%)
Written agreement between the firm and the bondholders that sets forth the terms of the bond:
Bond indenture
DEBT/EQUITY

Ownership interest
Equity
Most bond transactions take place _____.
Over-the-counter
Bonds that make no periodic interest payments:
Zero coupon bonds (coupon rate = 0%)
Written agreement between the firm and the bondholders that sets forth the terms of the bond:
Bond indenture
Capacity to pay is strong, but more susceptible to changes in circumstances:
Medium Grade

Moody's A and S&P A
List 2 examples of zero coupon bonds:
1) Treasury bills
2) Principal only treasury strips
Capacity to pay is strong, but more susceptible to changes in circumstances:
Medium Grade

Moody's A and S&P A
List 2 examples of zero coupon bonds:
1) Treasury bills
2) Principal only treasury strips
DEBT/EQUITY

Interest is considered a cost of doing business and is tax deductible.
Debt
Coupon debt with original maturity between one and ten years:
T-notes
Downward sloping yield curve with long-term yields that are lower than short-term yields:
Inverted yield curve
DEBT/EQUITY

Interest is considered a cost of doing business and is tax deductible.
Debt
Bonds that cannot sell for more than par value:
Zero coupon bonds (coupon rate = 0%)
Coupon debt with original maturity between one and ten years:
T-notes
Downward sloping yield curve with long-term yields that are lower than short-term yields:
Inverted yield curve
List 2 examples of floating rate bonds:
1) Adjustable rate mortgages
2) Inflation-linked treasuries
Bonds that cannot sell for more than par value:
Zero coupon bonds (coupon rate = 0%)
List 2 examples of floating rate bonds:
1) Adjustable rate mortgages
2) Inflation-linked treasuries