Chapter 3 Flashcards
Term bond
Structured so that the principal of the whole issue matures at once
Serial bond
Schedule portions of the principal to mature at intervals over a period of years until entire balance has been repaid
Balloon bond
Mix of serial and term bond where most is matured at end but payments occur during life
What is a bond stated at “90” worth
$900
Nominal yield
Stated yield at time of issue
Current yield formula
Annual payment / Market price
Three major credit rating agencies
- Fitch
- Moody’s
- S&P 500
Lowest level of investment grade bond
BBB, Baa
What purchasing power risk means
Little hedge against inflation
What calendar year is accrued interest in corporate bonds based on
360-day
Collateral Trust Bonds
Option to borrow where borrower gives issuer securities as collateral to the lenders
Debentures
Written promises of the corporation to pay the principal at it’s due date, based on good faith and general creditworthiness
Guaranteed bonds
Backed by a company other than the issuing corporation, like a parent company
Does “guaranteed” in bonds mean the payment is guaranteed?
No
Income bonds
Used when a company is coming out of bankruptcy and pays interest only if corporation has enough left over to pay it
Subordinated debt
“Lower class” debt that has last claim to every creditor
Order of liquidation
Secured –> Unsecured –> Subordinated –> Preferred stock –> Common stock
How zero-coupon bonds are taxed
Annually
What any bond that has a company building collateralized is called
Mortgage bond
General Obligation Bonds
Those issued for capital improvements that benefit entire community
Revenue Bond
Those used to finance specific municipal facilities
Two types of bonds that are zero-coupon
- Treasury receipts
- STRIPS
Special provision with TIPS
Principal value of bond is adjusted every 6 months
What “agencies”: of the federal government are
Individually owned entities that are gov’t sponsored
