Bond Basics Flashcards
Issuers are likely to call in their debt securities when?
New securities can be issued at lower interest rates; during low levels of inflation
A declining Rate of inflation would lead to:
Higher bond prices and Lower bond yields
Municipal DOLLAR bonds are generally issued as
TERM Bonds
Liquidity Risk
The risk that a security can only be sold by incurring large transaction costs. The risk that it will be expensive to exit or LIQUIDATE a current security held.
What is a BBB rating
Lowest Quality Investment Grade
The yield to maturity of a bond:
Increases as bond prices decline, and Decrease as bond prices rise
Who are considered creditors of a corporation?
BONDHOLDERS
Reinvestment Risk
The risk that interest rates dropping over time will cause the interest and principal payments to be reinvested at lower rates over time.
The Current Yield of a bond:
Increases as prices fall, and decrease as bond prices rise
Call Premium
The price above par at which the issuer has the right to call in the bonds from the bondholders (points above par making it a premium)
Serial Bonds are quoted on a:
Yield to maturity Basis
Corporate bonds are quoted on what type of basis?
Dollar Price
Rising inflation rates would lead to:
Lower Bond prices; Higher bond yields(interest rates)
Risks Associated with Overseas trading?
Political, Exchange Rate, Marketability, and Default
