Chapter 6 Flashcards
Long-term debt obligation issued by corporations and government units.
bonds
Markets that trade debt (bonds and mortgages) and equity (stocks) instruments with maturities of more than one year.
capital markets
A Treasury security in which the periodic interest payment is separated from the final principal payment.
STRIPS
types of bonds (4)
- treasury bonds
- municipal bonds
- corporate bonds
- agency bonds
- Par value is indexed to the Consumer Price Index
- Eliminate inflation risk
Treasury Notes and Bonds: TIPS
As par value changes:
– End payoff increases
– Coupon payment increase
Who issues municipal bonds?
state and local governments
The government-sponsored enterprise responsible for guaranteeing and funding home mortgages
Fannie Mae
A government supervised enterprise established to purchase primarily conventional mortgage loans in the secondary mortgage market.
Freddie Mac
A government agency that plays an important role in the secondary mortgage market it guarantees mortgage backed securities using FHA insured and VA guaranteed loans as collateral.
Ginnie Mae
- Zero coupon, derived from Notes and Bonds
- Eliminate interest rate risk
Treasury Notes and Bonds: STRIPS
- Federal income tax
- State income tax (in issuing state)
- Only includes coupon payments
- After-tax yield
- Taxable equivalent yield
Qualified bonds are tax exempt
- Backed by taxing authority
- Generally “low” default risk
- Taxing authority may be limited (more risk)
General obligation bonds
- Backed by specific project (i.e. toll road)
- Covenants enforced by a Trustee
Revenue bonds
long term debt issued by corporations; generally fixed term
Corporate bonds
___: less than 10 years
___: more than 10 years
Notes; bonds
