Chapter 7 part 2 Flashcards
the written agreement between the corporation and the lender detailing the terms of the debt issue
indenture
- the basic terms of the bonds
- the total amount of bonds issued
-a description of property ysed as security - the repayment arrangements
- the call provisions
- details of the protective covenants
what an indenture includes
any asset pledged on a debt
collateral
secured by a mortgage on real property
mortgage securities
pledges all real property owned by borrower
blanket mortgage
an unsecured debt, usually with a maturity of 10 years or more
debenture
an unsecured debt, usually with a maturity under 10 years
note
an account managed by the bond trustee for early bond redemption
sinking fund
an agreement givng the corporation the option to repurchase a bond at a specific price prior to maturity
call provision
(favors the bond issuer)
the amount by which the call price exceeds the par value of a bond
call premium
a call provision prohibiting the company from redeeming a bond prior to a certain date
deferred call provision
(favors the bondholder, realtive to a regular call provision)
a bond that during a certain period, cannot be redeemed by the issuer
call protected bond
a part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lenders interest
protective covenant
2 types of protective covenants
- negative
- positive
disallows certain actions
which protective covenant
negative covenant
requires certain actions
which protective covenant
positive covenant
state and local governments borrow money by selling notes and bonds
municipal bonds / munis / government bonds
a bond that makes no coupon payments and is thus initially priced at a deep discount
zero coupon bond / zeroes
difference between beginning value and ending value in a given time period
implicit interest
largest securities market in the world
the US treasury market
the price a dealer is willing to pay for a security
bid price
the price a dealer is willing to take for a security
asked price
the difference between the bid price and the asked price
bid-ask price
interest rates or rates of return that have been adjusted for inflation
(the percentage in how much you can buy with your dollars)
real rates
interest rates or rates of return that have not been adjusted for inflation
(the percentage change in the numnber of dollars you have)
nominal rates
nominal rate =
nominal rate =
real rate + inflation rate
the relationship between nominal interest rates and time to maturity
term structure of interest rates
the portion of a nominal interest rate that represents compensation for expected future infaltion
inflation premium
the compensation investors demand for bearing interest rate risk
interest rate risk premium / maturity risk premium
a plot of the yields on treasury notes and bonds relative to maturity
treasury yield curve
the portion of a nominal interest rate or bond yield that represents compensation for the possibility of default
deafult risk premium
the portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity
liquidity premium
normal yield curve slopes
upward
when long term rates are higher than short term rates, we say that the term structure is _____ sloping
upward
