THE BOND MARKET Flashcards
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.
DEBT INSTRUMENTS
Debt instrument contracts include detailed provisions on the deal such as
collateral involved
the rate of interest
the schedule for interest payments
the timeframe to maturity
Are tools an individual, government entity, or business entity can utilize for the purpose of obtaining financing.
DEBT INSTRUMENTS
obligations both personal and corporate that are paid within one year.
Short-term debt instruments
Examples of Short-term debt instruments
credit card bills
payday loans
consumer loans
revolving credit lines
treasury bills
obligations due for payment for over a year through periodic installment payments.
Long term debt instruments
Examples of Long term debt instruments
mortgage
notes
leases
bonds
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.
DEBT SECURITIES
Are financial assets that entitle their owners to a stream of interest payments.
DEBT SECURITIES
Require the borrower to repay the principal borrowed.
DEBT SECURITIES
The interest rate for a debt security will depend on the
perceived creditworthiness of the borrower.
Common Type of Debt Security
government bonds
corporate bonds
municipal bonds
collateralized bonds
zero-coupon bonds
It is the type of financial market in the form of debt transactions between demanders and suppliers of funds.
DEBT SECURITIES MARKETS
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.
THE BOND MARKET
The goal of the bond market is to
provide long-term financial aid and funding corporate and government entities.
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.
certificate of indebtedness
Bonds are commonly issued in denominations of P1,000, P5,000, or P10,000, referred to as
face value or par value.
A corporation sells all of its bonds to an investment firm, referred to as an _______, which resells the bonds to the investing public.
underwriter
Sold directly to investors.
Bonds
The contract between the issuing corporation and the bondholder is known as
bond indenture
The bond indenture specifies the ________, ____________, ____________ and all other important details affecting the contracting parties.
terms of the bonds
rights and duties of both parties
restrictions on the issuing corporation
mature on a single date
Term Bonds
mature on installment
Serial Bonds
Provide security and protection to investors in the form of specific assets of the issuer, such as real estate or other collateral.
Secured Bonds
secured by a lien against real estate
Real Estate Mortgage Bond
secured by shares of stocks and bonds held by the issuer as investments
Collateral Trust Bond
secured by a lien against movable property like motor vehicles
Chattel Mortgage Bond
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.
Unsecured Bonds
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.
Registered Bonds
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
Bearer Bonds or Coupon Bonds
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.
Callable or Redeemable Bonds
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.
Convertible Bonds
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.
Zero-Interest Bonds or Deep-Discount Bonds
The fixed interest rate or return of the bond which is paid to the bondholders.
Coupon Rate
The period when the bond issuer pays the investor at full-faced value of the bond.
Maturity Date
Bonds can be purchased at par, below par or above par. The market price depends on the level of interest rate in the market.
Current or Market Price
