Debt Flashcards
What is a mortgage bond backed by
Backed by real estate
What is a collateral trust bond backed by?
Backed by other securities the issuer owns (e.g. government debt)
What is an equipment trust certificate backed by?
Backed by equipment in the issuers business, most commonly rolling stock (rail road cars, etc.)
Subordinated debenture
paid last of all debts if the issuer defaults
Guaranteed bond
Unsecured debt security that is guaranteed by a third party (usually parent company guarantees subsidiary’s debt)
Is an income bond suitable for investors seeking income?
No, since it only pays interest if issuer makes a profit
T/F: Zero coupon bonds are issued at a discount
True, issued at a discount
T/F: zero coupon bonds have high price sensitivity to interest rate movements
True
When bonds issued at a discount must be accrued, is cost basis adjusted up or down?
Adjusted up
Cost basis adjusted up when bonds accreted
Treasury receipts are issued at a discount and backed by
Backed by broker dealers
Not US gov
T/F: T-Bills have a maturity date of 1-10 years
False, they mature in 1 year or less
Maturities range from a few days to 1 yr. Longer the maturity date, higher the interest payment
Is interest on T-Bills taxable at the state and local level?
No
Interest on all US Treasury securities is taxable only at federal level
T/F: Interest on all US treasury securities is taxable only at federal level
True, taxable only at federal. Not state and local
Are T-Notes a money market instrument?
No
Money market instruments mature in 1 year or less. T Notes are 2-10 years
Do Government National Mortgage Association (GNMA, Ginnie Mae) pass through certificates trade on NYSE?
No
The pass through certificates trade OTC
T/F: In most cases, interest on zero coupon bonds is accreted and taxed annually even though its not received until maturity
True
Accreted and taxed annually
T/F: STRIPS and Treasury Receipts and both direct obligations of the US gov
False
STRIPS are issued directly by gov and are direct obligations
Treasury Receipts are issued by investment bankers and are not direct obligations of US gov
How are T-Bills quoted
Annualized % discount from par
Example: T Bill quoted @ 1.3%
$1000 par * 0.013 = $13
$1000 - $13 = $987
Price is $987
How are T-Notes and T-Bonds quoted?
% of par in 32nds
Example: T Note quoted @ 94.08
94% + 8/32%
94% + .025% = 94.25%
$1000 * .9425 = $942.50
How often do investors in GNMA pass through certificates receive payment?
Monthly
Investors get a monthly check which includes both interest and principal
(GNMA approves lenders who issue pass-through certificates created from a pool of mortgages & backed by full faith and credit of US gov)
Limited tax bond
Municipalities issue these GO bonds when their ability to raise taxes is limited
Double barreled bond
Muni bond
Funded by project revenue but is backed by the issuer’s full faith and credit (taxes)
Industrial development revenue bonds are issued by a municipality but backed by ____
A private corporation
Issued by state or local gov on behalf of a private sector company
Special tax bonds are backed by taxes other than ____
Other than real estate
Like alcohol or tobacco taxes
Special assessment bond
Type of muni GO bond that is paid for with taxes only from people who will benefit from the project
If the muni does not make enough revenue from a project funded by moral obligation bonds to pay back the bond holders, why would the muni not just decide it doesn’t want to pay back bond holders?
Because it would hurt the municipality’s credit rating
Although they could technically not pay back bond holders if not enough revenue from project
Moral obligation bond
Revenue bond where if the project does not make enough money, muni promises it will find other ways to pay back bond holders.
Muni wouldn’t want to default on their moral obligation since it hurts credit rating
As a general rule, debentures pay interest every ___ months
6 months
Public and New Housing Authority Bonds
Provide financing for low and moderate income housing
Backed by full faith and credit of US gov
Is a debenture backed by the issuers full faith and credit?
Yes
Backed by full faith and credit if issuer
Although still unsecured debt
In a liquidation, are subordinated debentures paid before or after regular debentures and general creditors?
Paid after
Subordinated debentures paid after general creditors and regular debentures
