Fixed-Income Securities Defining Elements Part 4 Flashcards

1
Q

Bullet Bond

A

The principal is paid all at once at maturity

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2
Q

Fully amortized Bond

A

The principal is paid little by little in equal payments over a bond’s life so that it is repaid in full by the maturity date

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3
Q

Partially amortized Bond

A

Only a part of the principal is repaid over the bond life.
The remaining big part is paid at maturity, making it a balloon payment

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4
Q

Sinking fund arrangement

A

Allows for full or partial amortization of a bond prior to its maturity

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5
Q

Types of sinking fund arrangements

A

Standard
accelerated
call provision

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6
Q

Standard sinking fund arrangement

A

The issuer sends the repayment principal amount to the trustee

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7
Q

Accelerated sinking fund arrangement

A

The issuer retires more than the specified portion of the bond notional principal

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8
Q

Call provision

A

Gives the issuer the right to repurchase (call) the bond before maturity

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9
Q

Results of sinking fund arrangement

A

Lower credit risk
higher reinvestment risk

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10
Q

Lower credit risk

A

Sinking fund provision reduces credit risk for investors because the issuer does not have to pay a large payment at maturity

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11
Q

Higher reinvestment risk

A

Receiving principal payments before maturity

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12
Q

Fixed periodic coupons

A

Paid either semi-annually or annually

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13
Q

Floating rate notes

A

A bond whose coupon is said based on some reference rate plus a spread
Has floors, caps, collars

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14
Q

reference rate

A

an interest rate benchmark used to set other interest
rates.
Libor

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15
Q

Inverse floating rate notes

A

A bond whose coupon has a negative relationship with the reference rate

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16
Q

Floors

A

Minimum interest rate

17
Q

Caps

A

Maximum interest rate

18
Q

Collars

A

Both a minimum and maximum rate

19
Q

Step Up coupons

A

Coupons increase by specified amounts on specified date

20
Q

Bonds with credit-linked coupons

A

Coupons change when the issuer’s credit rating changes

21
Q

Bonds with payment-in-kind coupons

A

The issuer can pay coupons with additional amount of the bond issue instead of cash

22
Q

Index-linked bonds

A

Coupon payments or principal payments are linked to a price index

23
Q

Types of index-linked bonds

A

Zero-coupon-indexed Bond
interest-indexed bonds
capital-indexed bonds
indexed-annuity bonds