Accounting 2a - Stocks & Bonds - Bonds Flashcards
Debt
Money borrowed in exchange for interest.
Secured debt
Borrowed money that is backed by one or more assets as collateral. (debt related)
Unsecured debt
Borrowed money that is not backed with collateral. (debt related)
Principal
The original amount of money that was borrowed.
Bond
A debt instrument that allows an investor to loan money for a defined period of time in exchange for regular interest payments. Repayment is made as a lump sum at the end of the period.
Corporate bond
A bond issued by a corporation. (bond related)
Zero-coupon bond
A bond that is issued at a deep discount to its face value and pays no interest. (bond related)
Convertible bond
A bond that can be exchanged for a specified number of common shares in the issuing company. (bond related)
Callable bond
(bond related)
Government bonds
Bonds issued by governments. Called munis when issued by municipal governments and treasuries when issued by the United States government. (bond related)
Bills
Government bonds that mature in less than a year. (govt bond related)
Notes
Government bonds that mature in one to ten years. (govt bond related)
Bonds
Government bonds that mature in more than ten years. (govt bond related)
Par value (face value)
The amount of money loaned to the bond issuer.
Coupon
The bond?s interest rate.
Maturity date
The date at which the par value is repaid to the bondholder.
Yield to maturity (YTM)
The total return anticipated on a bond if the bond is held until maturity. YTM accounts for par value, market value (purchase price), coupon, current yield, and time to maturity.
Current yield
The interest, expressed as a percentage of current market value, an investor will receive for purchasing a bond and holding it for one year.
Credit risk
The risk that the bond issuer fails to make interest payments or fails to repay the bond at maturity.
Investment grade
Bonds with the lowest credit risk, rated between Aaa/AAA and Baa/BBB. (credit risk related)
Junk bonds
Bonds with the highest credit risk, rated below Baa/BBB. (credit risk related)
