THE BOND MARKET

Question 1

It is a documented, binding obligation that provides funds to an entity in return for a promise from the entity to repay a lender or investor in accordance with terms of a contract.

Answer 1

DEBT INSTRUMENTS

Question 2

Debt instrument contracts include detailed provisions on the deal such as

Answer 2

collateral involved
the rate of interest
the schedule for interest payments
the timeframe to maturity

Question 3

Are tools an individual, government entity, or business entity can utilize for the purpose of obtaining financing.

Answer 3

DEBT INSTRUMENTS

Question 4

obligations both personal and corporate that are paid within one year.

Answer 4

Short-term debt instruments

Question 5

Examples of Short-term debt instruments

Answer 5

credit card bills
payday loans
consumer loans
revolving credit lines
treasury bills

Question 6

obligations due for payment for over a year through periodic installment payments.

Answer 6

Long term debt instruments

Question 7

Examples of Long term debt instruments

Answer 7

mortgage
notes
leases
bonds

Question 8

It is a debt instrument that can be bought or sold between two parties and has basic terms defined, such as the notional amount (the amount borrowed), interest rate, and maturity and renewal date.

Answer 8

DEBT SECURITIES

Question 9

Are financial assets that entitle their owners to a stream of interest payments.

Answer 9

DEBT SECURITIES

Question 10

Require the borrower to repay the principal borrowed.

Answer 10

DEBT SECURITIES

Question 11

The interest rate for a debt security will depend on the

Answer 11

perceived creditworthiness of the borrower.

Question 12

Common Type of Debt Security

Answer 12

government bonds
corporate bonds
municipal bonds
collateralized bonds
zero-coupon bonds

Question 13

It is the type of financial market in the form of debt transactions between demanders and suppliers of funds.

Answer 13

DEBT SECURITIES MARKETS

Question 14

It primarily includes government-issued securities and corporate debt securities, facilitating the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations.

Answer 14

THE BOND MARKET

Question 15

The goal of the bond market is to

Answer 15

provide long-term financial aid and funding corporate and government entities.

Question 16

A bond is a ____________________ whereby the borrower agrees to pay a sum of money at a specified future date plus periodic interest payments at the stated rate.

Answer 16

certificate of indebtedness

Question 17

Bonds are commonly issued in denominations of P1,000, P5,000, or P10,000, referred to as

Answer 17

face value or par value.

Question 18

A corporation sells all of its bonds to an investment firm, referred to as an _______, which resells the bonds to the investing public.

Answer 18

underwriter

Question 19

Sold directly to investors.

Answer 19

Bonds

Question 20

The contract between the issuing corporation and the bondholder is known as

Answer 20

bond indenture

Question 21

The bond indenture specifies the ________, ____________, ____________ and all other important details affecting the contracting parties.

Answer 21

terms of the bonds
rights and duties of both parties
restrictions on the issuing corporation

Question 22

mature on a single date

Answer 22

Term Bonds

Question 23

mature on installment

Answer 23

Serial Bonds

Question 24

Provide security and protection to investors in the form of specific assets of the issuer, such as real estate or other collateral.

Answer 24

Secured Bonds

Question 25

secured by a lien against real estate

Answer 25

Real Estate Mortgage Bond

Question 26

secured by shares of stocks and bonds held by the issuer as investments

Answer 26

Collateral Trust Bond

Question 27

secured by a lien against movable property like motor vehicles

Answer 27

Chattel Mortgage Bond

Question 28

Frequently termed as DEBENTURES. These are not protected by the pledge of any specific asset of the issuing corporation. The issue of debenture bonds is generally based on the credit rating of the company, as these bonds arc backed only by the issuer’s general favorable credit standing. An issuer of debenture bonds must be financially strong to attract investors to buy at favorable interest rates.

Answer 28

Unsecured Bonds

Question 29

Bonds whose owners’ names are registered in the books of the issuing corporation. When these bonds are sold, the transfer agent cancels the original certificate surrendered by the seller, and a new certificate is issued and registered in the name of the new bondholder. Interest checks are mailed periodically to the bondholders of record.

Answer 29

Registered Bonds

Question 30

Not recorded in the name of the owner. Each bond is accompanied by coupons representing periodic interest payments, covering the life of the issue. Eliminates the need for recording changes in the ownership

Answer 30

Bearer Bonds or Coupon Bonds

Question 31

Those that give the issuing company the right to call or retire the bonds before maturity date, usually specified on the bond indenture. The issuing company pays the bondholder an amount in accordance with the call provisions.

Answer 31

Callable or Redeemable Bonds

Question 32

Those that give the bondholders the right to exchange their bond holdings into a specified or predetermined number of the issuing corporation’s shares of stock.

Answer 32

Convertible Bonds

Question 33

Are issued at significantly lower than their face value. Total interest on these bonds during their entire term is paid together with the principal amount on maturity date.

Answer 33

Zero-Interest Bonds or Deep-Discount Bonds

Question 34

The fixed interest rate or return of the bond which is paid to the bondholders.

Answer 34

Coupon Rate

Question 35

The period when the bond issuer pays the investor at full-faced value of the bond.

Answer 35

Maturity Date

Question 36

Bonds can be purchased at par, below par or above par. The market price depends on the level of interest rate in the market.

Answer 36

Current or Market Price