Bonds Flashcards
Fixed income securities that are issued by corporations and government to raise capital
Bonds
Characteristics of bonds
Coupon rate
Maturity date
Current price
Term (tenor)
The price at which corporation pays for the use of the bondholder’s money (Interest rate)
Coupon rate
The date at which the debt must be repaid
Maturity date
At par value
Current price
Length between the issue date and maturity date
Term (tenor)
Main types of bonds
Corporate bonds
Government securities
Corporate bonds
Secured bonds
Unsecured bonds
Money market instruments
Government securities
Treasury bills
Treasury notes
Treasury bonds
Agency bonds
Municipal bonds
Evidence of indebtness by the corporation to creditors
Corporate bonds
Covered by the deed of trust. Binding contract between an issuer and bondholder
Indenture
What is included in indenture
Date of maturity
Interest payment dates
Convertible/callable
Terms and conditions
Face amount of the debt that will be repaid at maturity date
PAR Value
Has repurchase options, provides higher coupon
Callable bonds
Option to exchange debt to equity
Convertible bonds
Investor will pay higher price for a bond that offers higher coupon rate than market yield
Premium coupon rate
Investors will pay lower price for a bond that offers lower coupon rate than market yield
Discount coupon rate
Formula for interest
Principal x rate x time
No annual or semi annual coupon payments, sold at deep discount to par
Zero coupon rate
Annual rate of return of bond
Yield/ Yield to Maturity
Current yield
Investment’s annual income/current price of security
Risk in bonds
Interest rate risk
Reinvestment risk
Call risk
Default risk
Inflation risk
Interest rates of ______ are adjusted to match inflation rate
Floaters
Have an inverse relationship with bond
Interest rates
Advantages of investing bonds
Preserving capital and earnings a predictable return
Debt security
Volatility of bonds is lower than equities
Legal protection
