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13 Cards in this Set
- Front
- Back
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what are bonds
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long-term debt securities issued by corporations and government agencies in order to fund their projects
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what are the 2 types of bonds
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1. secured - have collateral
2. unsecured or debentures or subordinate debentures - no collateral |
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what does a 'registered' mean in terms of bonds
-what bonds are not registered |
shows the record of ownership of the bond
-bearer bonds have no record of ownership |
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what is an indenture
-why is it important -what conditions are mentioned in indenture for a bond (6) |
contract between issuer of bond and bond holder
-contains condition of the bond -1. rights of all parties 2. restrictive provisions 3. sinking fund 4. call features 5. convertible features 6. terms (coupon rate, par, maturity) |
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what are the 5 types of bonds
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1. corporate
2. treasury 3. government agency 4. municipal (muni's) 5. zero coupon |
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define corporate, treasury, and government agency bonds
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1. corporate: issued by firms/companies, par ~ $1000, maturity ~10-30 years
2. treasury: issued and guaranteed by U.S. government; interest received is tax exempt 3. gov. agency: issued and guaranteed by particular government agency |
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define municipal bonds
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issued by counties, state, school districts; interest is federal tax exempt and usually state tax exempt
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define zero coupon bonds
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purchase bond at a large discount with no interest payments being made until maturity
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what relationship exists between current market interest rates (investors required rate of return) and bond value
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inverse relationship
-lower bond price = purchase at discount -higher bond price = purchase at premium |
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what are the 3 risks of bonds
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1. default risk: chance of losing original investment
2. call risk: chance of being called before before maturity and having to pay it back 3. interest rate risk: price changes due to changing interest rates (longer term bonds are more sensitive) |
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what is bond lattering
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investing in bonds with varying maturity dates
-diversification method |
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what are 2 major systems for rating bonds
-types of ratings |
Standard & Poor's and Moody's
-AAA or Aaa |
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what is the key phrase for bond valuation and what is the formula
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"what would you be willing to pay...?"
-$interest(PVIFA) + Par(PVIF) |
