chapter 6 part 4

Question 1

What are the terms of a Fixed-income security?

Answer 1

The issuer promises to pay back loan at maturity value at maturity date. With or without interest depending on the security.

Question 2

what are two benefits of borrowing money?

Answer 2

1. to finance operations or growth

2. to take advantage of operating leverage

Question 3

What is financial leverage?

Answer 3

When a company believes the money they borrow can make them more money than the interest on the loan.

Question 4

What is a bond and a trust deed?

Answer 4

a bond is a long term, fixed obligation debt security. A trust deed outlines the details of the bond contract

Question 5

what is defaulting on a bond?

Answer 5

when the issuer of the bond can no longer fill the financial obligation of the bond. Then the terms of the trust deed come into effect normally selling assets.

Question 6

what is a debenture?

Answer 6

A loan with regular interest payments and payment of principle at maturity. That is normally not secured by physical assets.

consider an unsecured loan

Question 7

are government bonds secured by physical assets?

Answer 7

no

Question 8

what is a floating security?

Answer 8

a bond with a variable coupon rate.

Question 9

what is a denomination when it comes to bonds?

Answer 9

Bonds are purchased in specific denominations. for retail markets they are generally smaller. for institutions they can be in the millions