Chapter 7 Flashcards
A long-term promissory note issued by the borrower, promising to pay the owner of the security a predetermined, fixed amount of interest each year
Bond
Any unsecured long-term debt
Debenture
A bond secured by a lien on real property
Mortgage Bond
A bond issued in a country different from the one in which the currency of the bond is denominated
Eurobond
A debt security that can be converted into a firm’s stock at a prespecified price
Convertible Bond
On the face of a bond, the stated amount that the firm is to repay upon the maturity date
Par Value
The interest rate contractually owed on a bond as a percent of its par value
Coupon Interest Rate
A bond that pays a fixed amount of interest to the investor each year
Faxed-rate Bond
A bond issued at a substantial discount from its $1,000 face value and that pays little or no interest
Zero Coupon Bond
The length of time until the bond issuer returns the par value to the bondholder and terminates the bond
Maturity
An option available to a company issuing a bond whereby the issuer can redeem the bond before it is due. Done if interest rates decline below what the firm is paying on the bond
Callable Bond
A prespecified time period during which a company cannot recall a bond
Call Protection Period
The legal agreement between the firm issuing the bonds and the bond trustee who represents the bondholders, providing the specific terms of the loan
Indenture
Any bond rated BB or below
Junk Bond
The value of an asset as shown on the firm’s balance sheet
Book Value
The dollar sum that could be realized if an asset were sold
Liquidation Value
The present value of an asset’s expected future cash flows. This value is the amount the investor considers to be fair value, given the amount, timing, and riskiness of future cash flows
Intrinsic Value
The present value of an asset’s expected future cash flows
Fair Value
Market where the values of all securities fully recognize all available public information
Efficient Market
The field of study examining when investors act rationally or irrationally when making investment decisions
Behavioral Finance
The discount rate that equates the present value of future cash flows of a bond with its current market price
Expected Rate of Return
The rate of return a bondholder will receive if the bond is held to maturity
Yield to Maturity
The ratio of bond’s annual interest payment to its market price
Current Yield
The variability in a bond’s value caused by changing interest rates
Interest Rate Risk
A bond that sells at a discount, or below par value
Discount Bond
A bond that is selling above its par value
Premium Bond
