Finance 363

Front 1

When interest rates rise, bond prices _____ b/c the PV of the bond's payments is obtained by discounting at a higher interest rate

Back 1

fall

Front 2

Treasury NOTES are issued with original maturities between ___ and ___ years

Back 2

1 and 10 years

Front 3

Treasury BONDS are issued with maturities ranging form ___ to ___ years

Back 3

10 to 30

Front 4

Treasury bonds and notes can only be purchased in denominations of ____ or _____ $

Back 4

100 or 1000

Front 5

Proceeds from the new bond issue are used to pay the repurchase of the existing higher coupon bonds at the call price. This is called ____

Back 5

refunding

Front 6

Callable bonds typically come with a period of call protection, an initial time during which the bonds are not callable. Such bonds are referred to as ______ callable bonds

Back 6

deferred

Front 7

______ _____ - excess of the bond price over its conversion value.

Back 7

conversion value

Front 8

____ bond gives issuer option to extend or retire bond at the call date

Back 8

callable

Front 9

____ rate doesn't adjust to changes in the financial conditions of the firms with floating-rate bonds

Back 9

coupon

Front 10

_____ _____ - promises to pay a specified stream of dividends. Failure to pay the promised dividend doesn't result in corporate bankruptcy. Instead, dividends owed simply cumulate and are paid when they can be afforded to be. Dividends not considered tax-dedcutible expenses to the firm (thats why it's held by many corporations)

Back 10

preferred stock

Front 11

_____ bonds - issued by a borrower from a country other than the one in which the bond is sold

Back 11

foreign

Front 12

________ - bonds issued in the currency of one country but sold in other national markets

Back 12

Eurobond

Front 13

_____ bonds - foreign bonds sold in the US

Back 13

yankee

Front 14

____ bonds- yen denominated bonds sold in Japn by non-Japanese issuers

Back 14

samurai

Front 15

____ bonds- british pound-denominated forieng bonds sold in the UK

Back 15

bulldog

Front 16

_______ ______ - similar to floating-rate bonds, except the coupon rate ont hese bonds fall when the general level of interest rates rise

Back 16

inverse floaters

Front 17

_____ _____ bonds - income from a specified group of assets is used to service the debt (Walt Disney, David Bowie bonds)

Back 17

Asset-backed

Front 18

______ bonds - issuers choose to pay interest either in cash or in additional bonds

Back 18

pay-in-kind

Front 19

____ bonds - make payments that are tied to a general price index or the price of a particular commodity (price of oil, inflation)

Back 19

indexed

Front 20

______ value = PV of coupons + PV of par value

Back 20

Bond

Front 21

Bond price will _____ as market interest rates rise, because the PV of the bond's payments is obtained by discounting at a higher interest rate

Back 21

FALL

Front 22

In the secondary market, bond prices fluctuate _____ with the market interest rate

Back 22

inversely

Front 23

______ ____ fluctuations represent the main source of risk in the bond market

Back 23

interest rate

Front 24

The longer the maturity of the bond, the ____ the sensitivity of its price to fluctuations in the interest rate

Back 24

greater

Front 25

_______ price = Flat price + accrued interest

Back 25

invoice

Front 26

When interest rates fall, the PV of the bond's scheduled payments ____

Back 26

rise

Front 27

____ bonds- bonds selling above par value (coupon rate > than current yield)

Back 27

premiums

Front 28

_____ bonds - bonds selling below par value (coupon rate < current yield)

Back 28

discount

Front 29

_____ _____ ____ bonds are bonds that are issued intentionally with low coupon rates that cause the bond to sell at a discount from par value.

Back 29

original issue discount bond

Front 30

____ ____ bond - bond rated BBB and above by Standard and Poor's or Baa and above by Moody's

Back 30

investment grade

Front 31

_____ ratios - ratios of company earnings to fixed costs

Back 31

coverage ratios

Front 32

______ ratio - debt-equity ratio

Back 32

leverage ratio

Front 33

_____ ____ allows repurchase of double the required number of bonds at the sinking fund call price

Back 33

doubling option

Front 34

_____ bond issue - doesn't rquire a sinking fund

Back 34

serial bond

Front 35

If collateral is property, bond is called a _______ bond

Back 35

mortgage

Front 36

If collateral takes the form of other securities held by the firm, the bond is a ______ _____ bond

Back 36

collateral trust

Front 37

In the case of equipment, the bond is known as an ______ _____ bond

Back 37

equipment obligation bond (railroads,)

Front 38

____ bonds do not provide for specificcollateral, they're unsecured, and bond risk dpeends ont he general earning power of the firm

Back 38

debenture

Front 39

Stated yield is the ___ possible yield to maturity of the bond

Back 39

maximum

Front 40

_____ _____ is the difference between the promised yield ona corporate bond and the yield of an otherwise identical government bond that is riskless in terms of default

Back 40

default premium

Front 41

Pattern of default premiums offered on risky bonds is call the ___ ____ of interest rates

Back 41

risk structure

Front 42

The CDS buyer may deliver a defaulted bond to the seller in return for the bond's par value. This is called ______ _____

Back 42

physical settlement

Front 43

Seller may pay the buyer the difference between the par value of the bond and its market price. This is called ____ _____

Back 43

cash settlement

Front 44

_____ yield curves imply falling interest rates, turn out to be best indicators of a coming recession

Back 44

Inverted

Front 45

Convertable bondholders "pay" for the option of exchanging them by accpeting a ___ coupon rate on the security

Back 45

lower

Front 46

Floating rate bonds pay a ____ premium over a referenced short-term interest rate. Risk is limited b/c the rate paid is tied to current market conditions

Back 46

fixed

Front 47

Bond prices and yields are ______ related

Back 47

inversely

Front 48

_____ ____ - US government issued zero-coupon bonds with original maturities of up to one year.

Back 48

t-bills

Front 49

_____ ____ swaps provide insurance against the default of a bond or loan

Back 49

credit default

Front 50

The term structure of ____ ____ is the relationship between time to maturity and term to maturity

Back 50

interest rates

Front 51

___ _____ theory argues that long term bonds will carry a risk premium known as a liquidity premium

Back 51

liquidity preference theory

Front 52

a _____ liquidity premium can cause the yield curve to slope upward even if no increase in short rates is anticipated

Back 52

positive

Front 53

Increase in the Discount Rate _____ the PV of the future cash flows

Back 53

decreases

Front 54

When yields get very hgih, the value of the bond will be very ___

Back 54

low

Front 55

Bond selling at discount when coupon rate is ___ than current yield, which is _____ than yield to maturity

Back 55

less

Front 56

According to the liquidity preference theory of the term structure of interest rates an increase in the yield on long term corporate bonds versus short term bonds could be due to _______ in interest rate volatality

Back 56

increase