Chapter 2 - Debt Securities

Question 1

To issue a corporate bond an issuer must prepare a formal written document called a

Answer 1

Bond indenture, or trust indenture

Question 2

Percentage of principal that must be paid annually for the loan.

Answer 2

Coupon rate, nominal yield

Question 3

a put feature is usually exercised by investor when interest rates ____

Answer 3

rise

Question 4

Investment grade bonds must be rated at least

Answer 4

BBB-

Question 5

an issuer may wish to redeem a callable bond when interest rates ______ significantly so the company can pay off the bonds and issue new ones at a ____ interest rate

Answer 5

drop, lower

Question 6

bond feature that allows the investor to force early redemption

Answer 6

put.. when the investor can put the bond into the issuers hands

Question 7

Bond indentures are required to be registered and qualified by the SEC for each corporate bond issue valued at over $5M by this act

Answer 7

Trust Indenture Act of 1939

Question 8

Indenture must identify

Answer 8

scope and features of the bond and holds the issuer to its terms

Question 9

In this type of bond as the interest is paid off with its scheduled redemptions, the reduced principal provides a corresponding reduction of interest payments

Answer 9

serial

Question 10

serial bonds with one maturity most often the last one, which contains a disproportionately large amount of principal

Answer 10

balloon maturity

Question 11

When a company issues a security and promises to return a specific amount of money plus periodic interest to the bond purchasers by a certain date

Answer 11

Bond, maturity/redemption date

Question 12

IOU for a fixed amount of money

Answer 12

Bond

Question 13

Old fashioned bond certificates that have coupons attached but no owner’s name printed

Answer 13

bearer bonds, coupon

Question 14

When company issues many bonds at once to raise funds

Answer 14

Bond issue

Question 15

A corporation issues $10 million of term bonds with a maturity of 10 years. This means that all bonds will mature at the end of 10 years and the corporation must repay the entire $20 million of principal at maturity. What maturity structure is this?

Answer 15

term bond

Question 16

A corp issues $20 million of serial bonds that come due in $2M installments during each of the years of the bond issue’s 10-year life. What type of maturity structure is this?

Answer 16

serial bond

Question 17

Bonds that reach maturity on the same date and have a single interest rate

Answer 17

term bonds

Question 18

amount the investor lends to the borrower (issuing entity)

Answer 18

principal

Question 19

Issuer will appoint a ______ to protect the bondholders rights as stated in the indenture

Answer 19

trustee

Question 20

groups of bonds that mature at different installment periods over a set length of time

Answer 20

serial bonds

Question 21

Callable bone is (more/less) risky and has a (higher/lower) coupon rate than a similar bond

Answer 21

more, higher

Question 22

Bonds below BBB- rating - 3 names

Answer 22

high yield, speculative, or junk bonds

Question 23

this type of bond offers an advantage to the issuer because they have lower interest expenses over the life of the bond

Answer 23

serial

Question 24

a bond that a company can pay off or redeem prior to its maturity date

Answer 24

callable