Personal Finance: Bonds

Front 1

What is a corporate bond

Back 1

a corporation's written pledge to repay a specified amount of money with interest

Front 2

What is face value

Back 2

The dollar amount the bondholder with receive at the bond's maturity

Front 3

What is maturity date

Back 3

for corporate bonds, the date on which the corporation is to repay the borrowed money

Front 4

What is bond indenture

Back 4

A legal document that details all of the conditions relation to a bond issue.

Front 5

What is a trustee

Back 5

A financially independent firm that acts as the bondholder's representative

Front 6

What's the formula to commute dollar amount of annual interest

Back 6

=face value x interest rate
ex.
=$1000 x 7.124%
=$71.25

Front 7

When do Corporations sell bonds?

Back 7

_don't have enough money to pay for major purchases
_need to finance a corporation's ongoing business activities
_can't sell stock
_lower taxes by tax-deductibles

Front 8

What are the differences between investing in stocks and investing in bonds?

Back 8

_corperate bonds are a form of debt financing, whereas stock is a form of equity financing. Bond owners must be repaid at a future date; _stockholders do not have to be repaid.
_interest payment on bonds are required, dividends are paid to stockholders

Front 9

What is a debenture

Back 9

A bond that is backed only by the reputation of the issuing corporation

Front 10

What is a mortgage bond

Back 10

A corporate bond secured by various assets of the issuing firm

Front 11

What is subordinated debenture

Back 11

An unsecured bond that gives bondholders a claim secondary to that of other designated bondholders with respect to interest payments, repayment, and assets (higher risk=higher interest)

Front 12

What is a convertible bond

Back 12

A bond that can be exchanged, at the owner's option, for a secified number of shares of the corporation's common stock

Front 13

What are three advantages to issuing convertible bonds?

Back 13

1) 1-2% lower interest
2) attracts thrill seekers (wants speculative gain)
3)doesn't have to repay with money if holder convert to common stock

Front 14

What is call feature

Back 14

a call feature allows the corporation to call in or buy outstanding bonds from current bondholders before the maturity date

Front 15

What are two methods corporations may use to ensure that sufficient funds are available to redeem a fond issue.

Back 15

1) sinking fund
2) Serial bond

Front 16

what is a sinking fund

Back 16

a fund to which annul or emiannual deposits are made for the purpose of redeeming a bond issue early

Front 17

What is a serial bond

Back 17

Bonds of a single issue that mature on different dates

Front 18

How do you calculate the approximate market value

Back 18

=dollar amount of annual interest/comparable interest rate
=$1000 x 5.5%/ 7%
=$55/7%
=$786

Front 19

What two options do you have when a you purchase a corporate bond

Back 19

-you can keep the bond until maturity and then redeem it, or you may sell the bond at any time to another investor

Front 20

what is bond ladder

Back 20

It is a strategy where investors divide their investment dollars among bonds that mature at regular intervals in order to balance risk and return