Corporate Debt

Question 1

What is the most common form of corporate debt?

Answer 1

Mortgage bonds

Question 2

Equipment Trust Certificate

Answer 2

Equipment owned by corp pledged as collateral. Issued in serial form so companies pay off debt as they use the equipment

Question 3

Collateral Trust Certificate

Answer 3

Portfolio of securities pledged as collateral, usually from a subsidiary company

Question 4

Commercial Paper

Answer 4

Short-term corporate financing. Usually range from 14-90 days. Never more than 270 days or it would have to be registered with SEC. Always zero-coupon

Question 5

Debenture

Answer 5

Intermediate and long-term debt backed by full faith and credit. Unsecured

Question 6

Income Bond

Answer 6

Issued after a corporation has gone bankrupt. Only pays if corp earns enough income. Also called Adjustment Bond

Question 7

Conversion Ratio for Convertible Corporate Debt (Convert bond into stock)

Answer 7

Par Value of Bond/Conversion Price

Question 8

Parity Price of Convertible Bond (Convert stock into bond)

Answer 8

Conversion Ratio * Stock Market Price

Question 9

Parity Price of Convertible Bond Stock Shares

Answer 9

Bond Market Value/Conversion Ratio

Question 10

Arbitrage

Answer 10

Trader buys lower priced security and simultaneously sells higher priced security

Question 11

How long before a regular way corporate bond trade settles?

Answer 11

3 days

Question 12

Are corporate bond’s interest income calculated on a 30/360 or actual basis?

Answer 12

30 day month/360 day year

Question 13

Tax Status of Corporate Bonds

Answer 13

Fully taxable by fed and state

Question 14

Claim Priority in a Liquidation

Answer 14

Secured creditors
Unpaid wages
Debenture bondholders
subordinated bondholders
preferred stockholders
common stockholders