Flash Card
What is a “call protection period”?
The time period before the first possible call date on a callable bond, thereby guaranteeing the bond will not be called before that date
Additional: a callable bond is not callable in just any date rather on specific dates. The period between the initial issue date and the first potential call date is referred to as the “call protection period”
What is meant by the terms “negotiable” and “marketable” as they relate to bonds?
Negotiable: refers to whether the bond is in a good delivery form
Marketable: bond are those that have a ready market, which means that clients are willing to but the bond because it had an attractive price and feature
What type of bond has had its coupons removed, is sold at a discount, and matures at par?
Strip bond or zero-coupon bond.
What is Samurai bond?
When a British company issues a bond in Japan in Japanese yen.
What purpose do “protective provisions” serve?
Feature/ clause that are added to a bond that serve to reduce the risk of default on the part of the issuer and/or to shelter investors from any weakening of their position relative to other securities from the issuer.
How is the difference between the amount paid for a strip bond and its maturity value taxed?
The difference is taxed as interest income.
What is a negative pledge provision?
A clause that prevents the borrower from pledging any asset to another creditor if the pledge results in less security for the current bond holder.
What is another name for a “serial bond”?
An instalment debenture; raising capital gain issued by Municipalities
What protective provision allows an issuer to repay all or a portion of its bond by maturity?
A sinking fund provision
What is maple bond?
Foreign company issued a bond in Canada in Canadian dollars
What is the range of terms to maturity of short-term bonds?
More than 1 year but less than 5 years
What is the difference between “commercial paper” and “banker’s acceptance paper”?
Commercial: promissory note issued by a corporation that is either secure or unsecured
Banker’s Acceptance: a commercial draft that guarantee by the bank
What determines the amount by which the face value of a Real Return Bond is adjusted?
Inflation rate
If a US issuer issues a bond in India denominated in Canadian dollars, how would it be categorized?
Eurobond
The period of time in which an investor must decide whether he or she wants to extend an extendable bond is known as what?
Election period
What is a “rectractable bond”?
Allows the investors to have it mature prior to the original maturity date
Jack purchased a bond from Jill. What period of time used to calculate the amount of accured interest Jack owes Jill?
From the day after the last interest payment up to and including the settlement date of the bond
What does a “callable “ feature allow a bond issuer to do?
The callable feature gives the issuer the right to call the bond back from bondholders and redeem the bond before its original maturity date.
What type of risk would you be most protected against if you purchased a real return bond?
Inflation risk
What will happen to the interest payment on floating-rate bond if interest rates increase?
The interest payments will increase
A $100,000 face value Real Return Bond was issued with a 5% coupon rate. Since it was issued, the CPI has increased by 0.08%. What is the adjusted face value of the bond?
$100,800
Calculate the face value adjustment
=$100,000 * 0.80%
=$100,000 * 0.008
=$800
Calculate the new face value
=$100,000+$800
=$100,800
How can “financial leverage “be defined?
Using borrowed capital in the hope of earning more on the borrowed funds than what is paid in interest on the loan.
How often do North America bonds typically pay interest?
Monthly, quarterly, semi-annually
North American- most bonds pay interest on a semi-annually
How much would an investor pay for $100,000 face value of a bond with an asking price of 99.80?
$99,800 plus accrued interest
What is the difference between a “laddered GIC” and “Installment GIC”?
Laddered GIC: divided into serval term
Installment GIC: initial lump sum
