Essay Revision Q6 Flashcards
What are the features of a corporate domestic bond?
- Face value: to be paid on maturity
- Coupon rate: interest payments either annually or semi annually
- maturity date: principle is repaid in this date
- term to maturity: time between now and maturity
- PRICE: coupon payments + face value
- yield: the rate of return of bond is held to maturity. Dependent on risk and IR.
What is a floating rate note?
Means the coupon rate is based on a floating rate index.
Such as LIBOR (London interbank offer rate) it is a benchmark, is published regularly to determine IR floating rates.
What are Zero Coupon bonds?
No interest is paid.
Are usually discount securities
Have a long maturity
Because the only cash flow id the principle,,they are sold at a deep discount.
What are deferred coupon bonds?
No interest payments in the first few years until cash flow is established.
What is a corporate bond?
A long term debt instrument
Issued by a company
Pays regular interest
What is a bond with embedded options?
The issuer can buy back the bond (callable bonds)
Or the bond holder can sell back the bond (puttable) prior to the maturity date.
What is a foreign bond?
Issued in countries other than the borrowers country.
Eurobonds?
Bonds issued in countries other than the borrowers country and in a different currency than the borrowers country.
