Ch.6 S7 Flashcards
Zero coupon bonds are purchased at a ___________ and mature at ___________.
Deep discount ; par
A bond convertible at $25 is trading at $1,150, and the stock is trading at $30. Is the bond at parity with the stock?
No, the bonds parity price is $1,200. The bond can be converted to 40 shares selling at $30, which equals $1,200.
T/F: Collateral Trust Bonds are backed by the stock of the issuing corporation.
F; the stock pledge must be that of a separate company.
T/F: long term CDs are considered money market instruments.
F; since long term CDs mature in over a year they are not considered money market instruments.
A reverse convertible is a type of ___________ product.
Structured
Are debentures considered secured or unsecured?
Unsecured
Money market securities only have a maturity of ___________.
A year or less
The type of bond where bond holders have a lien on real property is called _____________.
Mortgage bond
What is a step up long term CD?
A CD that offers an interest rate that is lower than current rates, with subsequent interest rates paid being higher.
A corporation that issues convertible bonds is borrowing money at a __________ rate.
Lower
What is forced conversion?
An issuer calls bonds at a point where the stock is worth more than the bonds call price
The strike price for conversion on a reverse convertible is also called the ______________ price.
Knock-in
To what is a reverse convertible structured product linked?
To the performance of an unrelated reference asset - often a single stock or basket of stocks, or an index
May Eurodollar bonds be issued in the US?
No, they are not registered with the SEC
What is the typical life of a reverse convertible security?
One year or less
If a bond is referred to as trading flat, this means it trades ____________.
Without accrued interest
ABC = $50. ABCs bond is convertible at $40 and callable at 105. Is the call or conversion and sale more profitable?
Conversion and sale equals $1,250 (25 shares x $50), while the call only provides $1,050
The maximum maturity of commercial paper is ________ days.
270 days
May Eurodollar bonds later trade in the US?
Yes
T/F: A favorable arbitrage situation occurs when a bond is trading at a discount to parity.
T
A bond backed by machinery or rolling stock is called a(n) _____________.
Equipment trust bond
Is the conversion of a bond a taxable event?
No, it’s a tax free exchange. It’s a taxable event once it’s sold.
What bonds are dollar denominated, US registered, and issued by multinational companies and foreign governments?
Yankee Bonds
Negotiable CDs (also called jumbo CDs) have a minimum denomination of ___________.
$100,000
