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Section 2 > Debt Securities > Flashcards

Debt Securities Flashcards

1
Q

Bonds are classified as what?

A

Debt securities

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2
Q

Investors on a bond becomes a what?

A

Creditor, who receives interest payments

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3
Q

Bonds have a par value of what amount?

A

$1,000

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4
Q

The interest rate of a bond is referred to as

A

Coupon rate and is a predetermined fixed rate

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5
Q

Series Bonds

A

Have different issue dates and usually have the same maturity date

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6
Q

Serial Bonds

A

One issue date and staggered maturity dates

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7
Q

3 categories of bonds

A
  1. Corporate
  2. Government
  3. Municipal
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8
Q

Current Yield on bonds

A

Annual interest divided by the market price

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9
Q

What is a nominal yield ?

A

interest rate on the face of the bond

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10
Q

Which bond reacts quickest to interest rate changes?

A

short-term

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11
Q

“M” is the roman numeral for

A

1,000

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12
Q

Corporate bond

A

and instrument of debt issued by the corporation

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13
Q

Interest is paid how often

A

Semi-annually, and is fully taxable at the federal, state, and local level.

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14
Q

Corporate bonds are traded where?

A

over-the-counter (OTC) market

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15
Q

The Trust Indenture Act of 1939

A

is a federal act that requires all corporate bonds and debentures be issued under an indenture or indeed of trust

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16
Q

The bond indenture

A

is a document which specifies the rights and duties of the issuer, underwriter, and investor

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17
Q

List the 5 corporate bonds

A
  1. Mortgage bonds
  2. Equipment Trust Certificate
  3. Collateral Trust Certificate
  4. Guaranteed Bonds
  5. Parity Bonds
18
Q

Closed-end Mortgage bond

A

A mortgage bond in which the property used cannot be used as collateral for future loans

19
Q

When would a bond most likely be called ?

A

The higher the coupon rate (interest rate) on the bond

20
Q

What notice must be given before a bond can be called?

A

investors must be given a “Notice of Call”, stating the date the bond will be redeemed

21
Q

When can a bond be refunded

A

When there is a sharp decline in interest rates.

22
Q

What are CMO’s

A

it is a bond that is secured by a pool of mortgage loans. CMO’s are mortgage-backed securities.

23
Q

How often do CMO’s pay investors

A

Monthly

24
Q

What is a tranch

A

It is the expected maturity date. Short-term, medium-term, long-term

25
Q

What is a private CMO

A

Securities issued by a bank, investment banks, and home builders

26
Q

Treasury bills

A

Short-term debt obligations of the federal government

27
Q

When does a treasury bill mature

A

1,2,3,6, and 12-month maturities

28
Q

What is the minimum deposit on a treasury bill

A

$100

29
Q

How are T-Bills taxed

A

as interest income and not as a Capital Gain. They are exempt from state and local taxes but are subject to federal income tax.

30
Q

How are T-Bills calculated

A

divided by 32nd

31
Q

What is a municipal bond

A

bonds issued by state and local government entities (cities, school districts, counties, authorities)

32
Q

What are the 2 types of municipal bonds?

A

General Obligation bonds (G.O.) & Revenue Bonds

33
Q

How do G.O bonds make principal and interest payments

A

from taxes collected by the municipalities (state, county, city, school district)

34
Q

Revenue bonds get revenue from

A

User fee’s (facilities, toll roads, bridges)

35
Q

Building America Bonds (BAB)

A

Taxable bonds used for rebuilding schools, hospitals, roads

36
Q

What is a money market?

A

Instruments that are high quality, short-term debt (12 months or less)

37
Q

Are T-Bills liquid

A

T-Bills are the most liquid of all money market instruments

38
Q

Negotiable Certificate of Deposit Features

A

a. Guaranteed by banks
b. 100,000 minimum deposits
c. 1 year or less

39
Q

Commercial Paper

A

Is an unsecured note issued at a discount, used to finance daily operations. It has a maximum maturity of 270 days

40
Q

Banker acceptance

A

Are used to finance foreign trade. It is the least liquid of all money market accounts

Section 2 (11 decks)

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