chapter 6 part 5 Flashcards
what are the 4 lengths of maturity for a bond
- Money markets up to 1 year
- short term bonds - more than 1 year but less than 5 remaining on term.
- medium term bonds - 5 - 10 years remaining on term.
- long term bonds - more than 10 years remaining on term.
what are 3 debt securities traded on the money markets?
- Treasury bills
- Bankers acceptances
- Commercial paper
what is a liquid bond?
Bonds that trade in high volumes
what is a negotiable bond?
a bond that has transferred ownership
what is a Marketable Bond?
A bond that is attractive financially
what is a strip bond?
A bond where the bond and coupon rate have been sold separately. also known as a zero-coupon bond.
what is a callable bond?
A bond that is redeemable before the maturity date. Normally requiring 10-30 days notice before redeeming. Most Cooperate and provincial bonds are callable. Most government and municipal bonds are not.
what is a standard call when it comes to callable bonds?
The price and which the bonds can be payed at when bought back by the issuer early. The standard call premium will reduce as it gets closer the actual maturity date.
what is the callable protection period of a bond?
Its the initial period where the callable bond cannot be called.
what is the Canada yield call?
when a bond is called (early) the call price is called for 50 basis points over current yield percentages. so if the bond originally had a yield of 7% and a year later its called and current yield percentages on canada bonds if 5% then the bonds can be called a yield price of 5.5%.
when the yield price falls below the coupon rate the price of the bond raises above par
what are retractable and extendable bonds?
A retractable bond is a bond that the maturity date can be change example from 10 years to 5. Retraction date
A extendable bond is a bond that can be changed from 5 year to 10. Extension date. Extendable bonds generally mature at the earlier date if not changed.
For both the decision to extend or retract must be made during a period of time called the election period.
What is the election period for retractable and extendable bonds?
The period in which a decision to retract or extend a bond can be made.
What are convertible bonds and debentures
they are a bond that has the option of converting into common shares. They are issued because they can be more attractive for an investor to buy.
It can also make borrowing money for the issuer cheaper.
most convertible bonds the conversion price slowly increases over time.
they are normally callable bonds aswell
What is forced conversion of convertible bonds?
When the stocks of a company rise a specified price and volume. some convertible bonds give the issuer the option to force conversion for the investor.
Usually a benefit to the issuer
what are 3 benefits of forced conversion for a company?
- It can improve a companys debt/equity ratio
- Reduces interest payments
- Can make room for new debt financing
