Chapter 9: Debt Securities Flashcards
The amount that will be paid by the issuer to the bond holders at maturity to retire the bonds.
Par value/ the par/ principal
The promised interest rate on the bond
Coupon rate
If the bond issuer fails to make the promised payments
Default
Has a finite life that ends on the bonds maturity date, offers a coupon rate that does not change over the life of the bond, and has a par value that does not change.
Fixed rate bond
Essentially identical to fixed rate bonds except that the coupon rate changes over time
Floating rate bonds/variable rate bonds
In bond markets, the practice is to refer to percentages in terms of ______.
Basis points
100 basis points equals …
1%
The par value - not the coupon rate - of the bond is adjusted at each payment date to reflect changes in inflation.
Inflation-linked bonds
These bonds do not offer periodic interest payments during the life of the bond
Zero coupon bonds
This type of bond gives bondholders the right to sell (put back) their bonds to the issuer prior to the maturity date at a pre-specified price referred to as the put price.
Putable Bond
Gives the bondholder the right to exchange the bond for shares of the issuing company’s stock prior to the bonds maturity date.
Conversion provision
Is calculated as the annual coupon payment divided by the current market price of a bond
Current yield
The discount rate that equates the present value of a bonds promised cash flows to its market price is the bonds…
Yield to maturity
The risk of loss if the borrower, or bond issuer, fails to make full and timely payments of interest and/or principal
Credit Risk
 Investors commonly refer to the difference between a risky bonds yield to maturity and the yield to maturity on a government bond with the same maturity as the risky bonds…
Credit spread
