11 - Bonding and Insurance Flashcards
is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.
bond
are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.
Bonds
Owners of bonds are called____________
debt holders, or creditors, of the issuer
is the money amount the bond will be worth at its maturity, and is also the reference amount the bond issuer uses when calculating interest payments.
Face value
is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage
Coupon rate
are the dates on which the bond issuer will make interest payments.
Coupon date
Typical intervals at Coupon dates
annual or semi-annual coupon payments.
is the date on which the bond will mature and the bond issuer will pay the bond holder the face value of the bond.
Maturity date
is the price at which the bond issuer originally sells the bonds.
Issue price
are issued by companies.
Corporate Bond
are issued by states and municipalities. ______ bonds can offer tax-free coupon income for residents of those municipalities.
Municipal Bonds
(more than 10 years to maturity), Notes (1-10 years maturity) and Bills (less than one year to maturity) are collectively referred to as simply “Treasuries.”
Treasury Bonds
do not pay out regular coupon payments, and instead are issued at a discount and their market price eventually converges to face value upon maturity. The discount a ________bond sells for will be equivalent to the yield of a similar coupon bond.
Zero-coupon bonds
are debt instruments with an embedded call option that allows bondholders to convert their debt into stock (equity) at some point if the share price rises to a sufficiently high level to make such a conversion attractive.
Convertible bonds
are callable, meaning that the issuer can call back the bonds from debt holders if interest rates drop sufficiently. These bonds typically trade at a premium to non-callable debt due to the risk of being called away and also due to their relative scarcity in the bond market. Other bonds are putable, meaning that creditors can put the bond back to the issuer if interest rates rise sufficiently.
corporate bonds
The majority of corporate bonds in today’s market are so-called____________, with no embedded options and a face value that is paid immediately on the maturity date.
bullet bonds
is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.
Insurance
are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.
Insurance policies
Three Important Components of Insurance Policies
- Premium
- Policy Limit
- Deductible
the specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time
Premium
is the maximum amount an insurer will pay under a policy for a covered loss.
Policy limit
is a specific amount the policy-holder must pay out-ofpocket before the insurer pays a claim.
Deductible
Types of Insurance
- Life Insurance
- Health Insurance
- Long-term Disability Coverage
- Auto Insurance
Characteristics of Insurance
Sharing of Risk Co-operative Device Value of Risk Payment and Contingency Amount of Payment Large Number of Insured Persons Insurance is not a gambling
Varieties of Bonds
- Zero-coupon bonds
- Convertible bonds
- corporate bond
- bullet bond
Three Main Categories/types of Bonds
- Corporate Bond
- Municipal Bonds
- Treasury Bond
Characteristic of Bonds
- Face value
- Coupon rate
- Coupon dates
- Maturity date
- Issue price
