Debt Securities - Loans and Bonds

Question 1

Vehicles by which corporations and governments raise debt capital

Answer 1

Bonds

Question 2

The remaining life until the bond issuer pays the face value and the bond expires

Answer 2

Maturity

Question 3

Another name for coupon yield

Answer 3

Coupon Rate

Question 4

When the market yields go up, bond prices go up and vice versa

Answer 4

Inverse Price-Yield Relationship

Question 5

A measure of the interest rate sensitivity of a bond

Answer 5

Duration

Question 6

Some type of asset is being used as collateral to back the loan

Answer 6

Secured Loan

Question 7

A loan that is not back by a specific asset

Answer 7

Unsecured Loan

Question 8

A bank that focuses mostly on mid to large sized companies

Answer 8

Commercial Banks

Question 9

Firm financings that appears in the debt section of the balance sheet

Answer 9

Debt Capital

Question 10

Securities that pay an equal payment on fixed periods like a bond

Answer 10

Fixed-income securities

Question 11

A single cash flow at one point in time

Answer 11

Lump Sum

Question 12

The lump sum amount paid on a bond’s maturity date

Answer 12

Face Value AKA Par Value

Question 13

The legal document detailing a bond

Answer 13

Bond Indenture

Question 14

The rate the bond issuer promises to pay its investors

Answer 14

Coupon Yield aka Coupon Rate

Question 15

Rules set forth in the bond indenture to protect bond investors

Answer 15

Covenants

Question 16

A bond covenant that requires the firm to do something

Answer 16

Affirmative Covenants

Question 17

A bond covenant that prohibits the firm from doing something

Answer 17

Negative Covenants

Question 18

Figuring out the present value of money you will receive in the future

Answer 18

Discounting

Question 19

The minimum return an investor requires to invest in an asset, given the riskiness of the asset and potential opportunity cost to the investor

Answer 19

Required rate of return

Question 20

The required rate of return of a bond is also called the

Answer 20

Yield to Maturity

Question 21

Non-cash costs found from asking “What could the firm have done with the money instead?”

Answer 21

Opportunity Cost

Question 22

An approximation of the yield to maturity that does not incorporate the time value of money

Answer 22

Current Yield

Question 23

Unsecured bonds

Answer 23

Debentures

Question 24

A lower-ranked bond that is not secured by collateral or guarantees

Answer 24

Subordinated Debentures

Question 25

Bonds that are secured by real property

Answer 25

Mortgage Bonds

Question 26

No coupon bonds that typically sell at deep discounts

Answer 26

Zero Coupon Bonds

Question 27

Bonds issued in a country not in that country’s currency

Answer 27

Eurobonds

Question 28

Bonds issued in a domestic market by a foreign film, but in the domestic currency

Answer 28

Foreign Bonds

Question 29

A bond issued by a local municipality, such as a city or a county

Answer 29

Municipal Bonds, or Muni-bonds

Question 30

A bond issued by the U.S. Federal Government

Answer 30

Treasury Bonds

Question 31

Bonds that can be converted into equity at the owner’s request

Answer 31

Convertible Bonds

Question 32

Speculative Bonds rated BB or below

Answer 32

Junk Bond

Question 33

A rating assigned to a firm to measure the probability of default by a company like S&P or Moody’s

Answer 33

Bond Ratings

Question 34

The process of examining the three financial statements using financial skills

Answer 34

Financial Statement Analysis

Question 35

Bonds rated BBB or Above

Answer 35

Investment Grade

Question 36

The rate of return assuming instantaneous compounding between periods

Answer 36

Continuously Compounded Interest