Finc-318 Chapter 7

Front 1

Long-term debt instrument issued by a business or govt:

Back 1

Bond

Front 2

Bond that is paying less than similar bonds in the market:

Back 2

Discount bond

Front 3

Principle amount of bond that is repaid at the end of the term:

Back 3

Par value (Face value)

Front 4

Par (face) value < Bond price

Back 4

Premium bond

Front 5

YTM > coupon rate

Back 5

Discount bond

Front 6

Bonds with longer maturities have greater _____.

Back 6

Interest rate risk

Front 7

Annual coupon divided by the face value of a bond:

Back 7

Coupon rate

Front 8

YTN < coupon rate

Back 8

Premium bond

Front 9

The rate implied by the current bond price:

Back 9

Yield to maturity

Front 10

Stated interest payment made on a bond:

Back 10

Coupon payment

Front 11

Bond that pays more than similar bonds in the market:

Back 11

Premium bond

Front 12

Rate required in the market on the bond:

Back 12

Yield to maturity

Front 13

Par (face) value > Bond price

Back 13

Discount bond

Front 14

Bonds with _____ have lower interest rate risk.

Back 14

Shorter maturities

Front 15

Date on which the principle amount of a bond is paid:

Back 15

Maturity date

Front 16

Register of company records ownership and the payment is made directly to the owner:

Back 16

Registered form

Front 17

Unsecured - increases risk and required return:

Back 17

Debentures (i.e. Notes)

Front 18

Prohibits actions by the firm ("cannot do"):

Back 18

Negative covenant

Front 19

Preference over other lenders:

Back 19

Seniority

Front 20

Secured by real property, normally land or buildings:

Back 20

Mortgage

Front 21

Firm prohibited from calling bond for a period of time:

Back 21

Deferred call provision

Front 22

Issuer is required to retire a portion of the bond issue each year:

Back 22

Sinking fund

Front 23

Unsecured debt with original maturity less than 10 years:

Back 23

Notes

Front 24

Limits certain action by the firm:

Back 24

Protective covenants

Front 25

The relationship between nominal returns, real returns, and inflation:

Back 25

The Fisher Effect

Front 26

Secured by financial securities:

Back 26

Collateral

Front 27

Difference between call price and stated value:

Back 27

Call premium

Front 28

Specifies actions that the firm agrees to take ("promise to"):

Back 28

Positive covenant

Front 29

Bond that is issued without record of the owner's name; payment is made to whoever holds the bond:

Back 29

Bearer form

Front 30

Allows company to repurchase bond issues at stated prices:

Back 30

Call provision

Front 31

The difference between the bid price and the asked price:

Back 31

Bid-ask spread

Front 32

Quoted rate of interest that is not adjusted for inflation:

Back 32

Nominal rate of interest

Front 33

Relationship between nominal interest rates on default-free, pure discount securities and time to maturity:

Back 33

Term structure of interest rates

Front 34

What are the 3 factors that affect required return?

Back 34

1) default risk premium
2) taxability premium
3) liquidity premium

Front 35

The % change in buying power:

Back 35

Real rate of interest

Front 36

YTM = coupon rate

Back 36

Par bond

Front 37

DEBT/EQUITY

Creditors do not have voting rights.

Back 37

Debt

Front 38

The term structure of interest rates includes what 3 things?

Back 38

1) inflation premium
2) real rate
3) interest rate risk premium

Front 39

The % change in the number of dollars:

Back 39

Nominal rate of interest

Front 40

Compensation demanded for expected future inflation:

Back 40

Inflation premium

Front 41

DEBT/EQUITY

Firm cannot go bankrupt.

Back 41

Equity

Front 42

Graphical representation of the term structure:

Back 42

Yield curve

Front 43

Rate adjusted for inflation:

Back 43

Real rate of interest

Front 44

Compensation demanded for bearing interest rate risk:

Back 44

Interest rate risk premium

Front 45

DEBT/EQUITY

Dividends are not a liability of the firm and stockholders have no legal recourse if dividends are not paid.

Back 45

Equity

Front 46

Bonds that are in default with principal and interest in arrears:

Back 46

Very Low Grade

Moody's D and S&P D

Front 47

Ratings with the lowest degree of speculation:

Back 47

"B" ratings

Front 48

Capacity to pay is adequate, adverse conditions will have more impact on the firm's ability to pay:

Back 48

Medium Grade

Moody's Baa and S&P BBB

Front 49

Pure discount bonds with original maturity of one year or less:

Back 49

T-bills

Front 50

DEBT/EQUITY

Common stockholders vote for the board of directors and other issues:

Back 50

Equity

Front 51

Capacity to pay is very strong:

Back 51

High Grade

Moody's Aa and S&P AA

Front 52

DEBT/EQUITY

Excess can lead to financial distress and bankruptcy.

Back 52

Debt

Front 53

Income bonds with no interest being paid:

Back 53

Very Low Grade

Moody's C and S&P C

Front 54

Bonds that are considered speculative with respect to capacity to pay:

Back 54

Low Grade

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

Front 55

DEBT/EQUITY

Not an ownership interest.

Back 55

Debt

Front 56

What are 4 types of Treasury securities?

Back 56

1) Federal Govt. debt
2) T-bills
3) T-notes
4) T-bonds

Front 57

DEBT/EQUITY

Dividends are not considered a cost of doing business and are not tax deductible.

Back 57

Equity

Front 58

Capacity to pay is extremely strong:

Back 58

High Grade

Moody's Aaa and S&p AAA

Front 59

DEBT/EQUITY

Creditors have legal recourse if interest or principal payments are missed.

Back 59

Debt

Front 60

Coupon debt with original maturity greater than ten years:

Back 60

T-bonds

Front 61

Upward sloping yield curve with long-term yields that are higher than short-term yields:

Back 61

Normal yield curve

Front 62

DEBT/EQUITY

Ownership interest

Back 62

Equity

Front 63

Coupon debt with original maturity greater than ten years:

Back 63

T-bonds

Front 64

Most bond transactions take place _____.

Back 64

Over-the-counter

Front 65

Upward sloping yield curve with long-term yields that are higher than short-term yields:

Back 65

Normal yield curve

Front 66

Bonds that make no periodic interest payments:

Back 66

Zero coupon bonds (coupon rate = 0%)

Front 67

Written agreement between the firm and the bondholders that sets forth the terms of the bond:

Back 67

Bond indenture

Front 68

DEBT/EQUITY

Ownership interest

Back 68

Equity

Front 69

Most bond transactions take place _____.

Back 69

Over-the-counter

Front 70

Bonds that make no periodic interest payments:

Back 70

Zero coupon bonds (coupon rate = 0%)

Front 71

Written agreement between the firm and the bondholders that sets forth the terms of the bond:

Back 71

Bond indenture

Front 72

Capacity to pay is strong, but more susceptible to changes in circumstances:

Back 72

Medium Grade

Moody's A and S&P A

Front 73

List 2 examples of zero coupon bonds:

Back 73

1) Treasury bills
2) Principal only treasury strips

Front 74

Capacity to pay is strong, but more susceptible to changes in circumstances:

Back 74

Medium Grade

Moody's A and S&P A

Front 75

List 2 examples of zero coupon bonds:

Back 75

1) Treasury bills
2) Principal only treasury strips

Front 76

DEBT/EQUITY

Interest is considered a cost of doing business and is tax deductible.

Back 76

Debt

Front 77

Coupon debt with original maturity between one and ten years:

Back 77

T-notes

Front 78

Downward sloping yield curve with long-term yields that are lower than short-term yields:

Back 78

Inverted yield curve

Front 79

DEBT/EQUITY

Interest is considered a cost of doing business and is tax deductible.

Back 79

Debt

Front 80

Bonds that cannot sell for more than par value:

Back 80

Zero coupon bonds (coupon rate = 0%)

Front 81

Coupon debt with original maturity between one and ten years:

Back 81

T-notes

Front 82

Downward sloping yield curve with long-term yields that are lower than short-term yields:

Back 82

Inverted yield curve

Front 83

List 2 examples of floating rate bonds:

Back 83

1) Adjustable rate mortgages
2) Inflation-linked treasuries

Front 84

Bonds that cannot sell for more than par value:

Back 84

Zero coupon bonds (coupon rate = 0%)

Front 85

List 2 examples of floating rate bonds:

Back 85

1) Adjustable rate mortgages
2) Inflation-linked treasuries