CPCU 540 Ch. 8 Flashcards
A municipal debt instrument secured by the full faith, credit, and taxing authority of the issuing state or municipality
General obligation bond
A municipal debt instrument that is payable entirely from revenue received from the users or beneficiaries of the projects financed
Revenue bond
A long-term debt instrument that is denominated to US dollars or another currency and that is offered and issued outside the issuer’s country of origin
Eurobond
A long-term debt instrument requires the issuer to pay a set annual rate of interest and to repay the borrowed sum on a specified date
Bond
A legal document that details the terms of a bond
Indenture agreement
The date on which a bond’s principal or par value becomes payable to the bondholder
Maturity date
In finance, the amount borrowed under a loan
Principal
A bond’s original value and the amount that will be paid at the bond’s maturity date
Face value
A bond’s annual interest rate stated as a percentage of its par value
Coupon rate
The amount of interest to be paid on the dates specified in indenture agreement
Coupon
A debt instrument that gives the holder the option to convert the bond into another security (generally common stock) of the issuing company at a specified price, within a given time, and under stated terms
Convertible bond
A debt instrument guaranteed by an entity other than the issuer
Guaranteed bond
A debt instrument that pays interest at a rate that is indexed to the rates on the US treasury securities or other money market instruments
Floating bond rate
A provision that requires a bond issuer to set aside money at periodic intervals for the specific purpose of repaying of its existing bonds each year
Sinking fund provision
A debt instrument that is secured by specific assets and has priority over the funds received in the liquidation of those assets
Secured bond
A debt instrument that is an unsecured general obligation of the issuing corporation
Debenture bond
A financial instrument collateralized by a pool of loans, leases, or other receivables
Asset-backed securities
A financial instrument collateralize by a pool of mortgages
Mortgage-backed security
A measure of the total rate of return a bondholder will earn over the life of the bond if it is held to maturity
Yield to maturity (YTM)
A bond issued that receives one of the top four investment quality ratings from one or both of the two main bond rating agencies, Moody’s and Standard & Poor’s or Moody’s
Investment grade bond
A bond that receives a BB/Ba rating or lower from on or both of the two main bond rating agencies, Standard & Poor’s or Moody’s
Junk bond
An additional return to compensate investors for the relatives illiquidity of an investment. The more illiquid an investment, the higher the return demanded by the investors
Liquidity premium
The effect on a bond’s price of the length of time to maturity
Term structure
For a given security, the difference in yield between one term of maturity and another
Maturity premium
The rate of return adjusted for the effects of inflation
Real rate of return
An increase in return on a security to account for an expected decrease in purchasing power associated with price inflation
Inflation premium
Stock that is generally nonvoting but that has a priority over a common stock, usually regarding dividends and capital distribution if the corporation ends its existence
Preferred stock
A security that gives the holder the right to receive accrued unpaid dividends before any dividends can be paid to the common stockholders
Cumulative preferred stock
A security that does not give the holder the right to receive accrued unpaid dividends
Noncumulative preferred stock
A type of preferred stock that allows the holder to convert it into a stated number of common shares of the issuing company
Convertible preferred stock
An ownership interest in a corporation that gives stock owners certain rights and privileges, such as the right to vote on important corporate matters and receive dividends
Fundamental analysis
Dividends paid divided by earning
Dividend payout ratio
A contract that obligates one party to buy another party to sell a specific financial instrument or physical commodity at a specified future date and price
Forward contract
An option to buy a set amount of the underlying security at any time within a specified period
Call option
An option giving the holder the right to sell a set amount of the underlying security at any time within a specified period
Put option
An accounting recognition of the difference between a bond’s purchase price and face value from purchase date to maturity
Amortized cost
An adjustment in an asset’s valuation to reflect changes in its actual or estimated market price
Mark-to-market
The profit earned by an insurer when an asset, such as a bond or stock, is sold for more than its cost
Realized capital gain
The profit not yet earned on a held asset when it exceeds its original purchase price but has not been sold
Unrealized capital gain
In accounting, the reduction in the cost basis of a financial asset by an amount that is deemed to be unrecoverable
Impairment
