Chapter 9 Flashcards
What is the proper order of liquidation for a corporation at bankruptcy?
Unpaid workers, IRS, secured creditors (bonds), unsecured creditors, preferred stock, and then common stock.
The type of bond where bondholders have a lien on real property is called a __________________.
mortgage bond
What are some examples of rolling stock used to back a bond offering?
Airplanes, trucks, railroad cars
A bond backed by machinery or rolling stock is called a(n) ______________________.
Equipment Trust Bond
True or False: Collateral Trust Bonds are backed by the stock of the issuing corporation.
False. Must be a separate company
Are debentures considered secured or unsecured?
Unsecured. Backed by the issuer’s full faith and credit
Is an income bond appropriate for a client who desires income?
No. Income (adjustment) bonds will only pay interest if the issuer has sufficient income.
If a bond is referred to as trading flat, this means it trades ___________________________.
without accrued interest
The formula for finding conversion ratio is: ______ ÷ ____________
Par ($1,000) / Conversion Price
What is forced conversion?
An issuer calls bonds at a point where the stock is worth more than the bond’s call price.
Name some of the advantages of buying convertible bonds.
Consistent interest payments, appreciation if stock rises, downside protection if stock falls (since it’s still a bond).
A corporation that issues convertible bonds is borrowing money at a _______ rate.
lower rate
True or False: A favorable arbitrage situation occurs when a bond is trading at a discount to parity.
True
Accrued interest on corporate bonds is calculated using _____ days in the month and ______ days in the year.
30 days/month, 360 days/year
When do corporate bond trades settle?
T+3 (three business days after trade date)