p1

Question 2

yield to call

Answer 2

the yield of a bond if you were to buy and hold the security until the call date, they are normally called a slight premium

Question 3

yield to worst

Answer 3

the lowest yield that can be received on a bond without the issuer actually defaulting. It is calculated by looking at the worst case provisions on the bond.. prepayment, call or sinking fund… it’s good for holders just to make sure they can cover their obligations in the worst case senario

Question 4

yield to maturity

Answer 4

rate of return if the bond is held until maturity, coupons are reinvested at the same rate

Question 5

bond

Answer 5

allows firms to borrow money and repay over a long period of time

Question 6

sold

Answer 6

issued

Question 7

issued

Answer 7

sold

Question 8

borrower

Answer 8

issuing firm

Question 9

issuing firm

Answer 9

borrower

Question 10

principal paid on the due date (maturity) by:

Answer 10

borrower, issuing firm

Question 11

face value

Answer 11

par value, the amount that the firm must pay at the maturity date

Question 12

market

Answer 12

bonds already issued, tradable, important for the company to continue to issue bonds

Question 13

consider selling

Answer 13

interest rates paid by competing investments become more attractive, the issuer becomes less creditworthy

Question 14

buyers

Answer 14

betting that interest rates will reverse course or the company will get back on it’s feet

Question 15

collateral

Answer 15

feature of some bonds, assets that back the bonds in case the issuer defaults on the loan

Question 16

debenture bonds

Answer 16

not back by specific collateral of the issuing company

Question 17

secured bond

Answer 17

specific assets that serve as collateral in case of default

Question 18

serial bonds

Answer 18

a portion of the principal is due each year for a number of years

Question 19

term bonds

Answer 19

most bonds, entire principal is due on a single date

Question 20

convertible bonds

Answer 20

can be converted into common shares at a future time, beneficial to the investor because they can join in with the growth of equity, better for the firm because they carry a lower interest rate

Question 21

callable bonds

Answer 21

issuer’s right to retire the bonds, typically stipulates price to be paid at redemption (redemption price, reacquisition price)

Question 22

redeemable bonds

Answer 22

buyer or investor has the right to retire the bonds

Question 23

bond pays 10%, interest rates plummet to 6%

Answer 23

company is willing to offer a slight premium over face value for the right to retire bonds so they can borrow at 6%, this is the call price

Question 24

tax benefits of bonds

Answer 24

interest paid on bonds is deductible for tax purposes but dividends paid on shares are not

Question 25

DBRS

Answer 25

Canada’s Dominion Bond Rating Service (DBRS) and SP provide investors with ratings for various bonds and notes, DBRS ratings go from AAA to D, C is speculative that has danger of default

Question 26

strip bonds

Answer 26

a bond where the coupons and principal are stripped

Question 27

maple bonds

Answer 27

a bond denominated in Canadian dollars that is sold by foreign financial institutions, allows institutions to invest in foreign currencies without worrying about currency risk

Question 28

fixed-floater

Answer 28

a bond that originally pays a fixed rate and at a specific call date they have the option of taking on a floating rate based off of a benchmark