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CSC > Chapter - 6 > Flashcards

Chapter - 6 Flashcards

1
Q

A protective clause found in a bond’s indenture or contract that binds the bond issuer to pledging all subsequently purchased assets as part of the collateral for a bond issue

A

after-acquired clause

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2
Q

A commercial draft (i.e., a written instruction to make payment) drawn by a borrower for payment on a specified date. It is guaranteed at maturity by the borrower’s bank. As with T-bills, They are sold at a discount and mature at their face value, with the difference representing the return to the investor. They may be sold before maturity at prevailing market rates, generally offering a higher yield than Canada T-bills.

A

bankers’ acceptance

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3
Q

A certificate evidencing a debt on which the issuer promises to pay the holder a specified amount of interest based on the coupon rate, for a specified length of time, and to repay the loan on its maturity. Strictly speaking, assets are pledged as security for a bond issue, except in the case of government “bonds”, but the term is often loosely used to describe any funded debt issue.

A

bond

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4
Q

The remaining bond once the coupons have been stripped

A

bond residue

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5
Q

May be redeemed (called in) upon due notice by the security’s issuer

A

callable bond

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6
Q

For callable bonds, the period before the first possible call date

A

call protection period

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7
Q

A bond secured by stocks or bonds of companies controlled by the issuing company, or other securities, which are deposited with a trustee

A

collateral trust bond

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8
Q

An unsecured promissory note issued by a corporation or an asset-backed security backed by a pool of underlying financial assets. Issue terms range from less than three months to one year. Most of them trade in $1,000 multiples, with a minimum initial investment of $25,000. They may be bought and sold in a secondary market before maturity at prevailing market rates.

A

commercial paper

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9
Q

The dollar value at which a convertible bond or security can be converted into common stock

A

conversion price

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10
Q

The right to exchange a bond for common shares on specifically determined terms

A

conversion privilege

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11
Q

A bond or debenture which may be exchanged by the owner, usually for the common stock of the same company, in accordance with the terms of the conversion privilege

A

convertible bond

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12
Q

The rate of interest that appears on the certificate of a bond. Multiplying the ___ times the principal tells the holder the dollar amount of interest to be paid by the issuer until maturity. For example, a bond with a principal of $1,000 and a coupon of 10% would pay $100 in interest each year. They remain fixed throughout the term of the bond.

A

coupon rate

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13
Q

A certificate of indebtedness of a government or company backed only by the general credit of the issuer and unsecured by mortgage or lien on any specific asset. In other words, no specific assets have been pledged as collateral

A

debenture

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14
Q

A debt instrument such as a bond or debenture is an instrument that represents a liability on a loan and specifies basic terms such as the amount borrowed, the interest rate and maturity date. The issuer promises to repay the loan at maturity. The term of the loan varies depending on the type of instrument.

A

debt security

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15
Q

The face values of a bond

A

denominations

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16
Q

The amount by which a preferred stock or bond sells below its par value

A

discount

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17
Q

Bonds issued in the currency and country of the issuer. For example, a Canadian dollar-denominated bond, issued by a Canadian company, in the Canadian market would be considered a ___.

A

domestic bond

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18
Q

When an investor purchases an extendible or retractable bond, they have a time period in which to notify the company if they want to exercise the option

A

election period

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19
Q

A type of debt security that was historically used to finance “rolling stock” or railway boxcars. The cars were the collateral behind the issue and when the issue was paid down the cars reverted to the issuer. In recent times, equipment trusts are used as a method of financing containers for the offshore industry. A security, more common in the U.S. than in Canada.

A

equipment trust certificate

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20
Q

Bonds that are issued and sold outside a domestic market and typically denominated in a currency other
than that of the domestic market. For example, a bond denominated in Canadian dollars and issued in Germany would be classified as a ___.

A

Eurobond

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21
Q

A bond or debenture with terms granting the holder the option to extend the maturity date by a specified number of years.

A

extendible bond or debenture

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22
Q

The value of a bond or debenture that appears on the face of the certificate. It is ordinarily the amount the issuer will pay at maturity. It is no indication of market value.

A

face value

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23
Q

The senior securities of a company as they constitute a first charge on the company’s assets, earnings and undertakings before unsecured current liabilities are paid

A

first mortgage bond

24
Q

Securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares

A

fixed-income securities

25
Q

A type of debt instrument that offers protection to investors during periods of very volatile interest rates. For example, when interest rates are rising, the interest paid on floating rate debentures is adjusted upwards every six months.

A

floating-rate securities

26
Q

When a company’s stock rises in value above the conversion price a company may force the convertible security holder to exchange the security for stock by calling back the security. Faced with receiving a lower call price (par plus a call premium) or higher valued shares the investor is forced to convert into common shares.

A

forced conversion

27
Q

If a Canadian company issues debt securities in another country, denominated in that foreign country’s currency, the bond is known as a foreign bond. A bond issued in the U.S. payable in U.S. dollars is known as a foreign bond or a “Yankee Bond.”

A

foreign bond

28
Q

A Canadian debt security issued in Canada but pays interest and principle in a foreign currency is known as a foreign pay bond. This type of security allows Canadians to take advantage of possible shifts in currency values.

A

foreign pay bond

29
Q

A deposit instrument most commonly available from trust companies, requiring a minimum investment at a predetermined rate of interest for a stated term. Generally nonredeemable prior to maturity but there can be exceptions.

A

guaranteed investment certificate (GIC)

30
Q

A hybrid investment product that combines the safety of a deposit instrument with some of the growth potential of an equity investment. They have grown in popularity, particularly among conservative investors who are concerned with safety of capital but want yields greater than the interest on standard interest bearing GICs or other term deposits.

A

index-linked notes

31
Q

A bond or debenture issue in which a predetermined amount of principal matures each year

A

instalment debenture

32
Q

Bonds that trade in significant volumes and can be made quickly without a significant sacrifice on the price

A

liquid bonds

33
Q

Bonds for which there is a ready market (i.e., clients will buy them because the prices and features are attractive)

A

marketable bonds

34
Q

The price at which the last trade on a stock occurred

A

market price

35
Q

The date at which the contract expires, and the time at which any maturity guarantees are based. Segregated fund contracts normally mature in 10 years, although companies are allowed to set longer periods. Maturities of less than 10 years are permitted only for funds such as protected mutual funds, which are regulated as securities and are not segregated funds.

A

maturity date

36
Q

A contract specifying that certain property is pledged as security for a loan

A

mortgage

37
Q

A bond certificate that is transferable by delivery and which, in the case of a registered certificate, has been duly endorsed and guaranteed

A

negotiable bonds

38
Q

The stated face value of a bond or stock (as assigned by the company’s charter) expressed as a dollar amount per share. Par value of a common stock usually has little relationship to the current market value and so no par value stock is now more common. Par value of a preferred stock is significant as it indicates the dollar amount of assets each preferred share would be entitled to should the company be liquidated.

A

par value

39
Q

The amount by which a preferred stock or debt security may sell above its par value. In the case of a new issue of bonds or stocks, the amount the market price rises over the original selling price. Also refers to that part of the redemption price of a bond or preferred share in excess of face value, par value or market price. In the case of options, the price paid by the buyer of an option contract to the seller.

A

premium

40
Q

The person for whom a broker executes an order, or a dealer buying or selling for its own account. The term may also refer to a person’s capital or to the face amount of a bond.

A

principal

41
Q

Covenant clauses that secure the bond

A

protective provisions

42
Q

A fund set up by a company to retire through purchases in the market a specified amount of its outstanding preferred shares or debt if purchases can be made at or below a stipulated price

A

purchase fund

43
Q

The coupon payments and principal repayment are adjusted for inflation to provide a fixed real coupon rate

A

real return bond

44
Q

A clause that allows issuers the right, but not the obligation, to pay off the bond before maturity. Also known as a ___.

A

redeemable bond, callable bond

45
Q

A bond that grants the holder the option under specified conditions to force the issuer to redeem the debt security

A

retractable bond

46
Q

A bond or debenture issue in which
a predetermined amount of principal matures each year. Also called ___.

A

serial bond or debenture, instalment debenture

47
Q

A fund set up to retire most or all of a debt or preferred share issue over a period of time

A

sinking fund

48
Q

Usually high quality federal or provincial government bonds originally issued in bearer form, where some
or all of the interest coupons have been detached. The bond principal and any remaining coupons (the residue) then trade separately from the strip of detached coupons, both at substantial discounts from par. Also called ___.

A

strip bonds, zero-coupon bonds

49
Q

A type of junior debenture. It indicates that another debenture ranks ahead in terms of a claim on assets and profits.

A

subordinated debenture

50
Q

Money invested for a fixed term for a fixed rate of return at a deposit-taking institution

A

term deposit

51
Q

The length of time that a segregated fund policy must be held in order to be eligible for the maturity guarantee. Normally, except in the event of the death of the annuitant, the term to maturity of a segregated-fund policy is 10 years.

A

term to maturity

52
Q

Short-term government debt issued in denominations ranging from $1,000 to $1,000,000. Treasury bills do not pay interest, but are sold at a discount and mature at par (100% of face value). The difference between the purchase price and par at maturity represents the lender’s (purchaser’s) income in lieu of interest. In Canada, such gain is taxed as interest income in the purchaser’s hands. Also known as ___.

A

Treasury bill, T-bills

53
Q

This is the formal document that outlines the agreement between the issuer and the holders. In the case of bonds, it outlines such things as the coupon rate, if interest is paid semi- annually and when, and any other terms and conditions between both parties.

A

trust deed

54
Q

A type of security that pays interest in amounts that fluctuate to reflect changes in interest rates. If interest rates rise, so will interest payments, and vice versa.

A

variable-rate securities

55
Q

The rate of return investors would receive if they purchased a bond today and held it to maturity. Yield
to maturity is considered a long-term bond yield expressed as an annual rate.

A

yield to maturity

CSC (12 decks)

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