Chapter 7 part 2

Question 1

the written agreement between the corporation and the lender detailing the terms of the debt issue

Answer 1

indenture

Question 2

• 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

Answer 2

what an indenture includes

Question 3

any asset pledged on a debt

Answer 3

collateral

Question 4

secured by a mortgage on real property

Answer 4

mortgage securities

Question 5

pledges all real property owned by borrower

Answer 5

blanket mortgage

Question 6

an unsecured debt, usually with a maturity of 10 years or more

Answer 6

debenture

Question 7

an unsecured debt, usually with a maturity under 10 years

Answer 7

note

Question 8

an account managed by the bond trustee for early bond redemption

Answer 8

sinking fund

Question 9

an agreement givng the corporation the option to repurchase a bond at a specific price prior to maturity

Answer 9

call provision
(favors the bond issuer)

Question 10

the amount by which the call price exceeds the par value of a bond

Answer 10

call premium

Question 11

a call provision prohibiting the company from redeeming a bond prior to a certain date

Answer 11

deferred call provision
(favors the bondholder, realtive to a regular call provision)

Question 12

a bond that during a certain period, cannot be redeemed by the issuer

Answer 12

call protected bond

Question 13

a part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lenders interest

Answer 13

protective covenant

Question 14

2 types of protective covenants

Answer 14

1. negative
2. positive

Question 15

disallows certain actions
which protective covenant

Answer 15

negative covenant

Question 16

requires certain actions
which protective covenant

Answer 16

positive covenant

Question 17

state and local governments borrow money by selling notes and bonds

Answer 17

municipal bonds / munis / government bonds

Question 18

a bond that makes no coupon payments and is thus initially priced at a deep discount

Answer 18

zero coupon bond / zeroes

Question 19

difference between beginning value and ending value in a given time period

Answer 19

implicit interest

Question 20

largest securities market in the world

Answer 20

the US treasury market

Question 21

the price a dealer is willing to pay for a security

Answer 21

bid price

Question 22

the price a dealer is willing to take for a security

Answer 22

asked price

Question 23

the difference between the bid price and the asked price

Answer 23

bid-ask price

Question 24

interest rates or rates of return that have been adjusted for inflation
(the percentage in how much you can buy with your dollars)

Answer 24

real rates

Question 25

interest rates or rates of return that have not been adjusted for inflation
(the percentage change in the numnber of dollars you have)

Answer 25

nominal rates

Question 26

nominal rate =

Answer 26

nominal rate =
real rate + inflation rate

Question 27

the relationship between nominal interest rates and time to maturity

Answer 27

term structure of interest rates

Question 28

the portion of a nominal interest rate that represents compensation for expected future infaltion

Answer 28

inflation premium

Question 29

the compensation investors demand for bearing interest rate risk

Answer 29

interest rate risk premium / maturity risk premium

Question 30

a plot of the yields on treasury notes and bonds relative to maturity

Answer 30

treasury yield curve

Question 31

the portion of a nominal interest rate or bond yield that represents compensation for the possibility of default

Answer 31

deafult risk premium

Question 32

the portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity

Answer 32

liquidity premium

Question 33

normal yield curve slopes

Answer 33

upward

Question 34

when long term rates are higher than short term rates, we say that the term structure is _____ sloping

Answer 34

upward