Debt Securities - Loans and Bonds Flashcards
Vehicles by which corporations and governments raise debt capital
Bonds
The remaining life until the bond issuer pays the face value and the bond expires
Maturity
Another name for coupon yield
Coupon Rate
When the market yields go up, bond prices go up and vice versa
Inverse Price-Yield Relationship
A measure of the interest rate sensitivity of a bond
Duration
Some type of asset is being used as collateral to back the loan
Secured Loan
A loan that is not back by a specific asset
Unsecured Loan
A bank that focuses mostly on mid to large sized companies
Commercial Banks
Firm financings that appears in the debt section of the balance sheet
Debt Capital
Securities that pay an equal payment on fixed periods like a bond
Fixed-income securities
A single cash flow at one point in time
Lump Sum
The lump sum amount paid on a bond’s maturity date
Face Value AKA Par Value
The legal document detailing a bond
Bond Indenture
The rate the bond issuer promises to pay its investors
Coupon Yield aka Coupon Rate
Rules set forth in the bond indenture to protect bond investors
Covenants
A bond covenant that requires the firm to do something
Affirmative Covenants
A bond covenant that prohibits the firm from doing something
Negative Covenants
Figuring out the present value of money you will receive in the future
Discounting
The minimum return an investor requires to invest in an asset, given the riskiness of the asset and potential opportunity cost to the investor
Required rate of return
The required rate of return of a bond is also called the
Yield to Maturity
Non-cash costs found from asking “What could the firm have done with the money instead?”
Opportunity Cost
An approximation of the yield to maturity that does not incorporate the time value of money
Current Yield
Unsecured bonds
Debentures
A lower-ranked bond that is not secured by collateral or guarantees
Subordinated Debentures
Bonds that are secured by real property
Mortgage Bonds
No coupon bonds that typically sell at deep discounts
Zero Coupon Bonds
Bonds issued in a country not in that country’s currency
Eurobonds
Bonds issued in a domestic market by a foreign film, but in the domestic currency
Foreign Bonds
A bond issued by a local municipality, such as a city or a county
Municipal Bonds, or Muni-bonds
A bond issued by the U.S. Federal Government
Treasury Bonds
Bonds that can be converted into equity at the owner’s request
Convertible Bonds
Speculative Bonds rated BB or below
Junk Bond
A rating assigned to a firm to measure the probability of default by a company like S&P or Moody’s
Bond Ratings
The process of examining the three financial statements using financial skills
Financial Statement Analysis
Bonds rated BBB or Above
Investment Grade
The rate of return assuming instantaneous compounding between periods
Continuously Compounded Interest
