6 Flashcards
instalment GIC
initial lump sum contribution is made, with further minimum contributions made weekly, bi-weekly, or monthly.
coupon rate
actual rate at which interest accrues on a bond. Unless bond has a special feature (eg. floating rate provision), the coupon does not change with market rates.
yield
rate of return, including capital gain/loss AND income, at the time of purchase of a bond.
If bond yields more than bonds with similar credit rating/term to maturity/features, then market will bid bond price up and yield down.
discount rate
rate used in present value calculations and duration analysis
foreign bonds
issued in a country AND currency different from issuer’s. eg. CAD company issues Yen-denominated bonds in Japan. Note: currency and country match, but issuer is foreign.
how are long-term Government of Canada bonds classified?
debentures, because no assets are pledged as security. They are backed by the credit-worthiness of the federal government.
banker’s acceptances (BA)
commercial draft (written instruction to make payment) drawn by a borrower for payment on a specified date. BA is guaranteed at maturity by the borrower’s bank. Like t-bills, BA’s are sold at a discount and mature at face value. They trade in $1k multiples, with a $25k minimum, and generally maturities b/w 30 to 90 days (though sometimes up to 365 days). BA’s may be sold before maturity at market rates, generally offering a higher yield than t-bills.
two types of non-callable bonds (usually)
(1) Municipal bonds (2) Government of Canada bonds
eurobonds
issued and sold outside home country, but typically denominated in currency different from country where bond is being issued. eg. CAD company issues Swiss Franc denominated bonds in Germany.
negative pledge covenant
assets that secure a debt issue cannot be used to pledge another debt issue (this would dilute current bond holders)
preferred debentures term lengths
preferred debentures are issued with terms 25-99 years.
how are Canada Savings Bonds purchased?
CSBs can only be purchased through the Payroll Savings Program which allows employees to purchase CSB’s at work through payroll deductions. More than 10k organizations in Canada participate in the program, including all levels of government, universities, school boards, hospitals, and corporations.
commercial paper
unsecured promissory note issued by corp OR asset-backed security issued by pool of underlying financial assets.
how does a conversion-to-equity option affect a bond?
This makes a bond more saleable or attractive to investors. It tends to lower the cost of the money borrowed and may enable a company to raise equity capital indirectly on terms more favourable than those possible through the sale of common shares.
settlement days: common shares
3 business days
