Chapter 1 Flashcards
Who are the three largest issuers of debt?
- Domestic Corporations
- Municipal Governments
- The Federal Government and its Agencies
What are the three types of deferred-coupon structures?
- Deferred-interest bonds
- Step-up Bonds
- Payment-in-kind Bonds
How does the coupon’s size influence the volatility of the bond’s price?
The larger the coupon, the less the price will change in response to a change in market interest rates. Therefore they are inversely related.
How are maturity and volatility related?
They are directly related. The longer the maturity, the more volatility.
What has a higher yield, a callable bond, or a non-callable bond?
A callable bond.
What are the two forms of call protection?
- NC Bonds
- NF Bonds
How do rates affect make-whole call pricing?
As interest rates decrease the make-whole call price increases. Therefore they are inversely related.
When does a firm retire a bond?
When the cost of retiring the bond falls below the firm’s after-tax cost of debt.
What are the two classifications of put provisions?
- Hard Puts
- Soft Puts
How do preferred stock dividends differ from normal dividends?
They are a specified percentage of the face value.
Are payments made to preferred stockholders taxable?
No, they are not. Instead, they are treated as distributed earnings. and therefore are classified as equity on a balance sheet.
What are the two types of real estate properties?
- Residential
- Non-residental
What are the two types of mortgage Bonds?
- Morgage Pass-Through Securities
- Collateralized Morgage Obligations
What are the two types of Stripped Morgage-Backed Securities?
- Synthetic-coupon pass-through
- Interest-only/principal-only securities
What type of loans are commercial mortgage loans?
- They are nonrecourse loans, meaning that the lender has no recourse to the borrower if the payment terms are not satisfied.
