Series 7 Chapter 8

Front 1

This is the value of a bond, and the price that an issuer agrees to pay once the bond matures

Back 1

Par Value

Front 2

This is the value of the fixed interest payments that the issuer has to pay to the bond holder

Back 2

The coupon Rate

Front 3

This is the actual interest rate that the investor receives once inflation is taken into account

Back 3

Real Interest Rate

Front 4

This type of risk is the risk that money you invest today will not be worth as much when you get it back in the future is known as?

Back 4

Inflation Risk

Front 5

What is another term for Inflation Risk

Back 5

Purchasing power risk

Front 6

This type of risk reflects the potential that future distributions of interest and principal may need to be reinvested at a lower rate of return

Back 6

Reinvestment Risk

Front 7

What type of debt security are said to eliminate Reinvestment Risk? Why?

Back 7

Zero-Coupon Bonds, because they do not pay a coupon.

Front 8

Corporate and Municipal Bonds on what calendar basis?

Back 8

360 day calendar basis, with 30 days per month

Front 9

How many days do you calculate accrued interest when a bond is settled the regular way?

Back 9

T+2 (are included in the accrued interest payment)

Front 10

Treasury securities accrue interest on what calendar basis?

Back 10

365 day calander

Front 11

This term denotes a debt security that does not trade with an accrued interest rate

Back 11

Trading Flat

Front 12

When all of the bonds in an issue mature at the same time, the issue is called?

Back 12

Term Bond Issue

Front 13

When bonds mature sequentially, the issue is called?

Back 13

Serial Bond Issue

Front 14

This type of bond does not have the name of the owner recorded either on the bond or on the books of the issuer

Back 14

Bearer Bonds

Front 15

This type of bond has the holders name and address recorded on the bond and on the books of the issuer

Back 15

Resisted bond

Front 16

This type of registered bond has the owners name and address recorded for the purposes of receiving written notices and payment of principal at maturity, Interest payments, however are received by means of attached interest coupons

Back 16

Registered as to principal only Bond

Front 17

This type of registered bond has the owner's name and address record for purposes of receiving written notices, payment of principal at time of maturity and interest payments

Back 17

Fully registered Bond

Front 18

This type of bond has no physical certificate issued, rather the ownership is evidenced by means of a computer entry of the owners name and address.

Back 18

Book Entry Bonds

Front 19

This type of risk is the risk that the issuer may default and may not be able to meet its obligations to pay interest and principal

Back 19

Credit Risk

Front 20

Who uses the credit rating, Aaa, and what quality does it denote?

Back 20

Moody's, Best Quality

Front 21

Who uses the credit rating, Aa, and what quality does it denote?

Back 21

Moody's, High Quality

Front 22

Who uses the credit rating, A, and what quality does it denote?

Back 22

Moody's, Upper Medium Grade

Front 23

Who uses the credit rating, Baa, and what quality does it denote?

Back 23

Moody's, Medium Grade

Front 24

Who uses the credit rating, AAA, and what quality does it denote?

Back 24

S&P, Best Quality

Front 25

Who uses the credit rating, AA, and what quality does it denote?

Back 25

S&P, High Quality

Front 26

Who uses the credit rating, A, and what quality does it denote?

Back 26

S&P, Upper medium Quality

Front 27

Who uses the credit rating, BBB, and what quality does it denote?

Back 27

S&P, Medium Grade

Front 28

Any bond with a quality of medium or above is considered what?

Back 28

Investment Grade

Front 29

Any bond with a quality of below medium is considered what?

Back 29

Speculative

Front 30

This type of risk is the risk that the market value of the investment may decline if the interest rates rise:

Back 30

Interest Rate Risk

Front 31

This type of yield is the same as the bonds coupon rate

Back 31

Nominal Yield

Front 32

This type of yield is measures the annual interest that the investor receives from the bond compared to its current market price

Back 32

Current Yield

Front 33

This type of yield measure all of the proceeds that the investor receives from the bond, once the bond has been purchased, until the bond matures

Back 33

Yield to Maturity

Front 34

From highest yield to lowest, list the order of yields when the bond is purchased at a discount

Back 34

1. Yield to Maturity

2. Current Yield

3. Nominal Yield

Front 35

From highest yield to lowest, list the order of yields when the bond is purchased at a preimum

Back 35

1. Nominal Yield

2. Current Yield

3. Yield to Maturity

Front 36

A bond has a nominal yield that equals the current yield, the current yield equals the yield to maturity.

What was this bond purchased at?

Back 36

Par

Front 37

A bond has a nominal yield that is less than the current yield, the current yield is less than the yield to maturity.

What was this bond purchased at?

Back 37

Discount

Front 38

A bond has a nominal yield that is more than the current yield, the current yield is greater than the yield to maturity.

What was this bond purchased at?

Back 38

Premium

Front 39

Which prices of bonds tend to fluctuate more, Long Term bonds or Short Term Bonds?

Back 39

Long Term Bonds

Front 40

Which yields tend to fluctuate more, Long term Bonds or Short Term Bonds?

Back 40

Short Term Bonds

Front 41

When interests rate rise, what happens to the value of a bond?

Back 41

The price of the bond falls

Front 42

When interest rates fall, what happens to the value of a bond?

Back 42

The price of the Bond Rises