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Investment and Portfolio Management > Bonds > Flashcards

Bonds Flashcards

1
Q

Fixed income securities that are issued by corporations and government to raise capital

A

Bonds

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2
Q

Characteristics of bonds

A

Coupon rate
Maturity date
Current price
Term (tenor)

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3
Q

The price at which corporation pays for the use of the bondholder’s money (Interest rate)

A

Coupon rate

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4
Q

The date at which the debt must be repaid

A

Maturity date

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5
Q

At par value

A

Current price

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6
Q

Length between the issue date and maturity date

A

Term (tenor)

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7
Q

Main types of bonds

A

Corporate bonds
Government securities

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8
Q

Corporate bonds

A

Secured bonds
Unsecured bonds
Money market instruments

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9
Q

Government securities

A

Treasury bills
Treasury notes
Treasury bonds
Agency bonds
Municipal bonds

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10
Q

Evidence of indebtness by the corporation to creditors

A

Corporate bonds

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11
Q

Covered by the deed of trust. Binding contract between an issuer and bondholder

A

Indenture

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12
Q

What is included in indenture

A

Date of maturity
Interest payment dates
Convertible/callable
Terms and conditions

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13
Q

Face amount of the debt that will be repaid at maturity date

A

PAR Value

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14
Q
A
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15
Q
A
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16
Q

Has repurchase options, provides higher coupon

A

Callable bonds

17
Q

Option to exchange debt to equity

A

Convertible bonds

18
Q

Investor will pay higher price for a bond that offers higher coupon rate than market yield

A

Premium coupon rate

19
Q

Investors will pay lower price for a bond that offers lower coupon rate than market yield

A

Discount coupon rate

20
Q

Formula for interest

A

Principal x rate x time

21
Q

No annual or semi annual coupon payments, sold at deep discount to par

A

Zero coupon rate

22
Q

Annual rate of return of bond

A

Yield/ Yield to Maturity

23
Q

Current yield

A

Investment’s annual income/current price of security

24
Q

Risk in bonds

A

Interest rate risk
Reinvestment risk
Call risk
Default risk
Inflation risk

25
Q

Interest rates of ______ are adjusted to match inflation rate

A

Floaters

25
Q

Have an inverse relationship with bond

A

Interest rates

26
Q

Advantages of investing bonds

A

Preserving capital and earnings a predictable return
Debt security
Volatility of bonds is lower than equities
Legal protection

Investment and Portfolio Management (10 decks)

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