Chapter 14 Flashcards

1
Q

what is a bond?

A

a written promise to pay an amount identified as the par value along with interest at a stated annual rate

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2
Q

What is par value?

A

face amount or face value

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3
Q

bond certificate

A

a document that specifies the issuer’s name, the bond’s par value, the contract interest rate, and the maturity date

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4
Q

What are the 2 main options for raising money in a corporation?

A

Issuing shares or issuing bonds

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5
Q

What can be a cause of issuing more shares only?

A

It can dilute the ownership of existing shareholders

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6
Q

What do bondholders have the ability to do?

A

To force the company into bankruptcy if they’re unable to make bond interest or principal payments for issued bonds

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7
Q

What are secured bonds?

A

Assets that are pledged as a guarantee of payment by the issuing company

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8
Q

What are unsecured bonds?

A

Bonds not backed by specific assets but only by earning capacity and credit reputation of the issuer

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9
Q

What is a term bond?

A

Principal of all bonds due in a lump sum at a specific single date

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10
Q

What is a serial bond?

A

Principal due in installments at several different dates

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11
Q

What is a registered bond?

A

Bonds issued registered in the names of the buyers. Ownerships records are kept up to date.

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12
Q

What is a bearer bond?

A

Bonds payable to the person who possesses them. No records are kept for change of ownership.

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13
Q

What is a convertible bond?

A

Bonds that allow the buyer to exchange the bond for common shares at a fixed ratio

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14
Q

What is a callable bond?

A

Bonds that may be called for early retirement at the option of the issuing corporation

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15
Q

What is a redeemable bond?

A

Bonds that may be retired early at the option of the purchaser

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16
Q

What is a bond indenture?

A

The legal document or contract identifying the rights and obligations of both the bondholders and the issuer

17
Q

What does a bond sell for when the coupon/contract rate is “above market rate” ?

A

At a premium or greater than 100% of face value

18
Q

What does a bond sell for when the coupon/contract rate is “equal to market rate”?

A

At par value or equal to face value

19
Q

What does a bond sell for when the coupon/contract rate is “below market rate”?

A

At a discount or less than 100% of face value