Chapter 11

Question 1

Bonds

Answer 1

Interest bearing note periodic interest distributions to the holder with face value due at maturity.

Usually issued in 1000 denominations

Question 2

2 types of Bonds

Answer 2

Secured:
backed by collateral

Unsecured Bonds:
No collateral

Question 3

2 types of Bonds

Answer 3

Secured:
backed by collateral

Unsecured Bonds:
No collateral

Question 4

Bond Indenture

Answer 4

Contract between issuer and bond holder

Question 5

Callable Bond

Answer 5

Issuer can pay back bond early

Question 6

Contract Rate

Answer 6

The interest rate to be paid on the bond.

Also know as the coupon rate

Question 7

Market Rate of Interest

Answer 7

Also know as the “effective Rate of Interest”

Determined by the market value of similar bonds purchase and sales rate.

Question 8

What does issuing bonds mean

Answer 8

A company is selling bonds

Question 9

BONDS

Market Rate > Contract Rate

Answer 9

Sold at a DISCOUNT

Question 10

BONDS

Market Rate = Contract Rate

Answer 10

Sold at FACE VALUE

Question 11

BONDS

Market Rate = Contract Rate

Answer 11

Sold at a PREMIUM

Question 12

$1000 bond is quoted at 98

Answer 12

The 98 stands for 98 % and cans be purchased or sold for $980

Or ($1000 x 0.98) =$980

Question 13

$1000 bond is quoted at 109

Answer 13

$1000 bond can be purchased or sold at $1090

Or ($1000 x $1.09) = $1090

Question 14

Interest on bonds are paid

Answer 14

Annually
Semi-annually
Or quarterly

Question 15

Effective Rate

Answer 15

Market Rate

Question 16

Bond is Quoted

Answer 16

As a % of the face value.

98 = 98% discount or .98

109 = 109% premium or .109