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30 Cards in this Set
- Front
- Back
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bond vs debenture
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fixed income securities
- fixed obligation that is secured by assets - details outlined in a trust deed debenture - secured with something other than a physical asset (called unsecured bonds) |
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types of interest payment provisions
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1. floating rate- coupons that change over time (set up bonds and savings bonds)
2. no period coupon interest- interest is compounded and paid at maturity (zero coupon, strip, residuals) 3. no interest rate, return is based on future factors |
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denominations
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bonds are purchased at specific denominations
1m 10m |
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bond yeilds
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discount- below par
premium- above par Yield is greater then the coupon- trading at discount Yeild is less then the coupon-trading at premium |
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liquid, negotiable and marketable bonds
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liquid- bonds trading in significant volumes, can trad easily with out sacrificing price
negotiable bonds- can be transferred because they are in deliverable form, not much of an issue now marketable- ready market, price and features are attractive- do not have an active second market |
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callable bonds
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- issuers often reserve the right, but not the obligation, to pay off bonds before maturity
- want to take advantage of a lower interest rate, or to reduce debt - call or redemption feature - 10-30 days notice most corp and prov are callable, gov and municipal is not * call protection period is the time before the first call fate when the bond cannot be called |
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Canada Yeild Calls
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feature that allows the issuer to call the bond at a price based on the greater of (a) par or (b)the price based on the yield of an equivalent-term government of canada bond plus a yield spread
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why are convertibles issued?
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holding of two way security
- good for people who want a share in a companys growth with out the risk - willing to accept a lower yeild of the convertible in order to have a all on the shares - prices are increased over time to encourage early conversion - protection against dilution - no adjustment for interest (do not have to pay accured interest) or dividends |
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forced conversion
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innovation build in that states once a stock trades above a certain level for a period of time, the company call the bonds for redemption
Benefit for company - lowers debt the equity ratio - relieves them from paying interest payments - make room for new debt financing |
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protective provisions
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covenants
- security (asset) - negative pledge (wont pledge assets if it means there is less for the security holder) - limit on sale and leaseback transactions- "" sales of assets or merger- must retire debt or have it assumed by new company - dividend test- wont drain equity by excessive dividend payments - debt test: limits new debt - additional bond provisions - sinking, purchase fund and call provisions- |
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government of canada securities
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- transferable in the market (CSB are not)
- marketable bonds are all non callable - relative risk compared to other countries is reflective in their yeilds |
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t bills
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sold in denominations from 1m to 1mm
particularly attractive when yeild is higher the Canadian Savings Bonds do not pay interests- sold at a discount taxable income sold every two weeks |
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canadian savings bonds
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purchased between October - april each year
cashed anytime dont rise or fall in price, therefore can always be cashed at their full par value plus accumulated interest - compound and regular interest compound still must report the interest as income in the year it was received |
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real return bonds
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principle and interest payments are adjusted for inflation
if inflation was 1.25% then the interest payments would be based on 1025 - maturity value would be found by taking the face value and multiplying it inflation |
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provincail bonds
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debentures, second in quality to Gov of Canada
no provincial assets are pledged |
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guaranteed Bonds
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many provinces guarantee the bond issues of provincially appointed authorities (ontario electricity)
provinces also borrow internationally to take advantage of lower borrowing costs (exchange rate and conditions)-- fed gov does it to maintain exchange rates |
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provincial securities
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- can be purchased only by people in the province
- only at a certain time of the year - redeemable every 6 months THREE TYPED OF ONTARIO SAVINGS BONDs step up, variable rate, fixed rate |
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municipal securities
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municipalities usually use installment debentures or serial bonds to raise funds
usually non callable third rank of public borrowers- sometimes the metropolitan debenture issues are favored to provinces for large areas credit rating depends alot on taxation resources and the number of industrys in that area |
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mortgage bond
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mortgage- legal document containing an agreement to pledge land, building or equipment as security for a loan and allowing the lender to take ownership if borrower fails to pay
mortgage bond is the same thing (lend money and the security is the same) mortgage bond was created bc the capital requirements became to large to be financed by one lender first mortgage bonds- senoir securities |
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collateral trust bonds
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secured by pledge of securities
often issued by holding companies that dont have assets |
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equipment trust certificates
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pledges equipment as security instead of real property
ex: CP locomotives |
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subordinated debentures
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junoir to other securities
status is in prospectus |
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floating rate securities
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automatically adjust to changing interest rates
protection during volatile interest rates sometimes min rate for protection |
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corporate note
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ST, unsecured promise to repay interest and funds at a specific date
rank behind all other |
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strip bonds
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zero coupon bond
a bunch of high quality bonds are purchased and then separated the individual future dated interest coupons and and sells each coupon a t discount like tbills, income is considered interest and not capital gain for tax purposes therefore better to hold in a tax deferred plan |
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domestic, foreign and euro bonds
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domestic- canadian corp or gov issued bonds in Canadian dollars in the canadian market
foreign bond- issued outside the issuers country and in a different currency foreign pay bonds- choice of interest payments in either of the two currencies - more portfolio diversification and cost effective access to foreign capital euro bonds- issued in a foreign market and in a currency other than that of the market where the bonds are issued |
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preferred securities
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often called preferred debentures
- very long term between 25-99 years - subordinated to all other debentures but ahead of preferred shares - interest can often be defferred by management for up to five years - trade on an exchange - |
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bankers acceptance
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commercial draft to make payments
guaranteed at maturity by the borrowers bank sold at discount mature at face value trade in 1000 intervals with a min of 25m term to maturity of 30-90 days |
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commercial paper
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unsecured promissory note
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GIC
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fixed rates of interest for a specific term
both P and I are guaranteed, redeemable or nonredeemable escalating, laddered, installment, index linked, interest rate linked |
