Fixed Income Securities

Question 0

Speculative rate (junk) bonds

Answer 0

Bonds with rating below BBB

Question 1

Investment-grade bonds

Answer 1

Bonds with ratings above BBB

Question 2

Yields to maturity

Answer 2

the interest rate that makes the present value of a bond’s
payments equal to its price;
or
the average rate of return which will be earned if bought now
and held until maturity.

Question 3

Indenture

Answer 3

Bond contract terms

Question 4

Protective measures for bondholders

Answer 4

sinking fund - put aside money to retire indebtedness
serial bond issue - bonds with staggered maturity dates
subordination clauses restrict the amount of additional
borrowing
dividend restriction
collateral
credit default swaps - insurance policy

Question 5

Term structure

Answer 5

interest rates for various terms to

maturity embodied in the prices of zero-coupon bonds

Question 6

Spot rate

Answer 6

yield to maturity on zero-coupon bonds; the rate which
prevails today for a time period corresponding to the zero’s
maturity

Question 7

Short rate

Answer 7

interest rate for the interval available at different
points in time