Chapter 9 - Corporate Debt Securities and Money-Market Instruments Flashcards
What is the proper order of liqudiation for a corporation at bankruptcy?
- Unpaid workers
- IRS
- Secured creditors
- Unsecured creditors
- Preferred
- Common
The type of bond where bondholders have a lien on real property is called a _________.
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) ________.
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.
The stock pledged must be that of a separate company.
Are debentures considered secured or unsecured?
Unsecured.
They are backed only 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 ___________.
If a bond is referred to as trading flat, this means it trades without accrued interest.
The formula for finding conversion ratio is:
______
÷
____________
The formula for finding conversion ratio is:
Par
÷
Conversion Price
(par for a bond is $1,000)
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.
A corporation that issues convertible bonds is borrowing money at a 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.
Accrued interest on corporate bonds is calculated using 30 days in the month and 360 days in the year.
When do corporate bond trades settle?
T + 3 (three business days after the trade date)
True or False: Interest paid on corporate bonds is entirely tax-exempt
False.
Corporate bond interest is taxed at the federal, state, and local level.
What are Eurodollar bonds?
Dollar-denominated bonds issued outside the U.S.
May Eurodollar bonds be issued in the U.S.?
No, and they are not registered with the SEC.
May Eurodollar bonds later trade in the U.S.?
Yes
What bonds are dollar-denominated, U.S. registered, and issued by multinational companies and foreign governments?
Yankee Bonds
An ________ indenture allows additional bonds to be issued and backed by the same collateral.
An open-end indenture allows additional bonds to be issued and backed by the same collateral.
The Trust Indenture Act of 1939 regulates _______ offerings.
The Trust Indenture Act of 1939 regulates corporate bond offerings.
(NOT municipal or government offerings).
Corporate bonds quotes may be found in the ______.
Corporate bonds quotes may be found in the Yellow Sheets
Money-market securities have a maturity of __________.
Money-market securities have a maturity of one year or less.
