Chapter 4: Markets and Instruments (The Bonds Market) Flashcards
It is composed of longer-term borrowing instruments than those that trade in the money market.
Bond Market
This market includes:
- Treasury Notes and Bonds
- Corporate Bonds
- Municipal Bonds
- Mortgage Securities
- Federal Agency Debt
T-note maturities range up to _________, while T-bonds range from _____________.
10 years; 10 to 30 years.
Both T-note and T-bonds are issued in _________ denominations and up
$1,000
Both make semiannual interest payments called _____________.
coupon payments.
are quoted as a percentage of par value,
Bond Prices
the yield to maturity reported in the financial pages is calculated by determining the semiannual yield and then doubling it, rather than compounding it for two-half year periods.
Simple Interest technique
to annualize means that the yield is quoted on an annual percentage rate (APR) basis rather than as an effective annual yield.
Simple interest technique
Bonds that investors buy from foreign issuers.
International Bonds
These are the years during which the bond is callable.
Callable bonds
Also called as bond equivalent yield
APR method
Bonds selling above par value; are calculated as the yield to the first call date.
Premium bonds
is a foreign currency denominated bond issued locally
Eurobond
are calculated as the yield to the maturity date
Discount bonds
dollar- denominated bond sold in Britain
eurodollar bond
yen-denominated bond sold outside Japan
Euroyen bonds
is a dollar-denominated bond sold in the U.S. by a foreign firm.
Yankee bond
is a yen-denominated bond issued in Tokyo by a non-Japanese company subject to Japanese regulations.
Samurai bond
The means private firms borrow money directly from the public.
Corporate bonds
they typically pay semiannual coupons over their lives and return the face value to the bondholder at maturity.
Treasury issues
The two bond types
- Secured bonds
- Unsecured Bonds
called Debentures, which have no collateral
Unsecured Bonds
which have specific collateral backing them in the event of firm bankruptcy
Secured Bonds
which have a lower priority claim to the firm’s assets in the event of bankruptcy.
Subordinate debentures
give the firm the option to repurchase the bond from the holder at a stipulated call price.
Callable Bonds
give the bondholder the option to convert each bond into a stipulated number of shares of stock.
Convertible Bonds
are bonds that are tied to mortgage loans.
Mortgage-backed securities (MBS)
refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark.
Derivatives
These contracts can be used to trade any number of assets and carry their own risks.
Derivatives
A _________ is set between two or more parties that can trade on an exchange or over-the-counter (OTC).
derivative
are investment vehicles for individuals, and they can be profitable for lenders.
Mortgaged back-securities
are usually leveraged instruments, which increases their potential risks and rewards.
Derivatives
